FICO: Americans More Likely to Default on Mortgages than Credit Cards

by devteam March 10th, 2010 | Share

American consumersrnare now defaulting on their mortgages in even greater numbers than they arernwalking away from credit card debt. rnAccording to FICO's® Score Trends Service,rnthis is a phenomenon that is historically unique.

FICO said the mortgagerndefault risk for consumers with high FICO scores now exceeds their credit cardrndefault risk, even though most credit cards are unsecured credit and mortgagesrnare secured by real estate.  There is arnparallel rise in mortgage delinquencies for these high scoring consumers.

The company saidrnthat their analysis of trends in FICO scoring shows that recent repaymentrnbehavior has shifted significantly from what has historically beenrnexpected.  In 2005 bankcard accounts werernmore than 3 times more likely to become seriously delinquent, that is 90+ daysrnlate, than were mortgages.  During thernperiod 2008 to 2009 that number slipped to 1.6 times as likely.  Borrowers at the high end of FICO's scoringrnrange of 300-850 were even more likely to become seriously delinquent.  In 2009, 0.3 percent of consumers withrn760-789 FICO scores defaulted on real estate loans; only 0.1 percent defaultedrnon bankcards.  

 “We're identifying lending industry situationsrnin FICO Score Trends that to our knowledge have never been seen before,” saidrnDr. Mark Greene, CEO of FICO. “Economic instability is creating unknown risk inrnlenders' credit portfolios as well as counter-intuitive trends in consumerrnbehavior. While the FICO 8 score continues to prove its unprecedented power inrnrank-ordering consumers for risk, even low-risk consumers are changing thernvalue they give different credit lines.” rnDr. Green made his statement in late February and noted that thernupcoming implementation of the CARD Act would likely create “additional,rnunhelpful pressures on the banking business.”

The company found thatrnlenders had tightened their lending criteria in 2008-2009 and beganrn”cherry picking” their new borrowers. rnAs a result mortgages granted between April and October last year usedrnsignificantly higher standards that those granted earlier.  In 2005, borrowers with FICO scores below 700rnconstituted 46 percent of new mortgage customers but by last year that numberrnhad dropped to 25 percent.  In the bankcardrnsector, 51 percent of new customers had scores under 700 in 2005, 38 percentrnhad scores in that range in 2008.

The most dramatic shift inrnthe mortgage/bankcard ratio occurred in the Pacific region where bankcards arernnow only 1.3 times more likely to be defaulted than mortgages, down from 6.4rntimes more likely in 2005.  In thernMidwest where the smallest change occurred the ratio slipped from 2.5 times torn1.5.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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