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Mortgage News Daily combines the expertise of some of the housing industry's leading minds with the power of social media to offer an always lively, constantly evolving web community. MND communicates breaking news, streams video, and provides expert opinion and commentary to a community of interested market professionals and curious consumers.FICO: Americans More Likely to Default on Mortgages than Credit Cards
American consumers
are now defaulting on their mortgages in even greater numbers than they are
walking away from credit card debt.
According to FICO's® Score Trends Service,
this is a phenomenon that is historically unique.
FICO said the mortgage
default risk for consumers with high FICO scores now exceeds their credit card
default risk, even though most credit cards are unsecured credit and mortgages
are secured by real estate. There is a
parallel rise in mortgage delinquencies for these high scoring consumers.
The company said
that their analysis of trends in FICO scoring shows that recent repayment
behavior has shifted significantly from what has historically been
expected. In 2005 bankcard accounts were
more than 3 times more likely to become seriously delinquent, that is 90+ days
late, than were mortgages. During the
period 2008 to 2009 that number slipped to 1.6 times as likely. Borrowers at the high end of FICO's scoring
range of 300-850 were even more likely to become seriously delinquent. In 2009, 0.3 percent of consumers with
760-789 FICO scores defaulted on real estate loans; only 0.1 percent defaulted
on bankcards.
"We're identifying lending industry situations
in FICO Score Trends that to our knowledge have never been seen before," said
Dr. Mark Greene, CEO of FICO. "Economic instability is creating unknown risk in
lenders' credit portfolios as well as counter-intuitive trends in consumer
behavior. While the FICO 8 score continues to prove its unprecedented power in
rank-ordering consumers for risk, even low-risk consumers are changing the
value they give different credit lines."
Dr. Green made his statement in late February and noted that the
upcoming implementation of the CARD Act would likely create "additional,
unhelpful pressures on the banking business."
The company found that
lenders had tightened their lending criteria in 2008-2009 and began
"cherry picking" their new borrowers.
As a result mortgages granted between April and October last year used
significantly higher standards that those granted earlier. In 2005, borrowers with FICO scores below 700
constituted 46 percent of new mortgage customers but by last year that number
had dropped to 25 percent. In the bankcard
sector, 51 percent of new customers had scores under 700 in 2005, 38 percent
had scores in that range in 2008.
The most dramatic shift in
the mortgage/bankcard ratio occurred in the Pacific region where bankcards are
now only 1.3 times more likely to be defaulted than mortgages, down from 6.4
times more likely in 2005. In the
Midwest where the smallest change occurred the ratio slipped from 2.5 times to
1.5.
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YOUR MESSAGE HERE
FICO: Americans More Likely to Default on Mortgages than Credit Cards
American consumers
are now defaulting on their mortgages in even greater numbers than they are
walking away from credit card debt.
According to FICO's® Score Trends Service,
this is a phenomenon that is historically unique.
FICO said the mortgage
default risk for consumers with high FICO scores now exceeds their credit card
default risk, even though most credit cards are unsecured credit and mortgages
are secured by real estate. There is a
parallel rise in mortgage delinquencies for these high scoring consumers.
The company said
that their analysis of trends in FICO scoring shows that recent repayment
behavior has shifted significantly from what has historically been
expected. In 2005 bankcard accounts were
more than 3 times more likely to become seriously delinquent, that is 90+ days
late, than were mortgages. During the
period 2008 to 2009 that number slipped to 1.6 times as likely. Borrowers at the high end of FICO's scoring
range of 300-850 were even more likely to become seriously delinquent. In 2009, 0.3 percent of consumers with
760-789 FICO scores defaulted on real estate loans; only 0.1 percent defaulted
on bankcards.
"We're identifying lending industry situations
in FICO Score Trends that to our knowledge have never been seen before," said
Dr. Mark Greene, CEO of FICO. "Economic instability is creating unknown risk in
lenders' credit portfolios as well as counter-intuitive trends in consumer
behavior. While the FICO 8 score continues to prove its unprecedented power in
rank-ordering consumers for risk, even low-risk consumers are changing the
value they give different credit lines."
Dr. Green made his statement in late February and noted that the
upcoming implementation of the CARD Act would likely create "additional,
unhelpful pressures on the banking business."
The company found that
lenders had tightened their lending criteria in 2008-2009 and began
"cherry picking" their new borrowers.
As a result mortgages granted between April and October last year used
significantly higher standards that those granted earlier. In 2005, borrowers with FICO scores below 700
constituted 46 percent of new mortgage customers but by last year that number
had dropped to 25 percent. In the bankcard
sector, 51 percent of new customers had scores under 700 in 2005, 38 percent
had scores in that range in 2008.
The most dramatic shift in
the mortgage/bankcard ratio occurred in the Pacific region where bankcards are
now only 1.3 times more likely to be defaulted than mortgages, down from 6.4
times more likely in 2005. In the
Midwest where the smallest change occurred the ratio slipped from 2.5 times to
1.5.
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