Study: Homeowners who default on mortgage alone not a credit risk
A new TransUnion study
revealed that consumers who only defaulted on their mortgage during the
economic recession were far better risks than those consumers who went
delinquent on multiple credit accounts, such as credit cards and auto loans.
This was evident across all credit scoring ranges.
The study did not find
any strong evidence supporting the widely accepted "excess liquidity
theory," which suggests consumers who stopped paying their mortgage loans
during the recent recession had an increased cash flow in the short term, and
therefore, could repay other debts. In fact, consumers in the foreclosure
process performed similarly, if not better, on certain accounts when they
opened them further in the foreclosure process.
"This study is
critical in that it sheds more light on consumer behavior in a challenging
economy," said Ezra Becker, vice president of research and consulting in
TransUnion's financial services business unit. "The analysis of consumer
preferences between products and how they manage and prioritize them is
important information lenders need to leverage to effectively manage their
customer relationships. This study affords lenders greater insight into
consumer performance, hopefully leading to a more mutually profitable,
long-term relationship between lender and borrower."