TransUnion: Borrowers with Modifications Perform Better on Consumer Loans

A new study has found that consumersrnwho received mortgage modifications outperformed those who did not on newrnconsumer loans they opened after their initial mortgage delinquency.   The study, conducted by TransUnion, looked atrnconsumers who were 120 days past due at some point on their mortgages andrncompared the credit performance of those who had received a loan modificationrnand those with a similar credit score who had not.</p

The study found that 41.9 percent ofrnmortgages that were modified during the period studied – 2008 to 2010 – were 60rndays delinquent on that mortgage at the 12 month mark following modificationrnand 59.1 percent by the end of 18 months.</p

Generally speaking, borrowers whornreceived a loan modification and then opened a new auto loan or credit cardrnaccount performed better on those new loans than those who had not received arnmodification.  For those with modificationsrn6.06 percent were 60 or more days delinquent on that loan 12 months afterrnopening the account.  For credit cardsrnthe rate was 13.63 percent.  Where borrowersrnhad not received a mod the 60 day delinquency rates were 11.40 percent andrn17.13 percent. </p

Within the population of modifiedrnmortgages, the study looked at borrowers who had defaulted on their mortgagesrnbut on no other loans compared to those with multiple delinquencies. Thern12-month recidivism rate for mortgage-only (MO) defaulters was 38.8%, while thernrecidivism rate for multiple delinquency (MD) borrowers was 46.2%.</p

The subset of borrowers who hadrnmultiple defaults also performed more poorly on new credit than MO borrowers.  The former group at the end of 12 months hadrna 60 day delinquency rate on auto loans of 8.65 percent and credit cards ofrn27.69 percent.  The group with only arnmortgage default had rates of 4.03 percent and 6.55 percent respectively.</p

“MO defaulters significantly outperformed MD defaulters on new loansrnopened after mods even when controlling for credit score,” said CharliernWise, director of research and consulting in TransUnion’s financial servicesrnbusiness unit. “After 12 months, MO defaulters had an average 45% lowerrndelinquency rate on new auto loans opened following a mortgage mod, and anrnaverage 63% lower delinquency rate on new bankcards.”</p

Of more than 5 million mortgagernloans that were originated prior to 2008 and were delinquent during the studyrnperiod TransUnion identified approximately 559,000 records of mortgagernmodifications which were analyzed for 6-, 12- and 18-month performance.  It may be worth mentioning that the 41.9rnpercent redefault rate at the 12 month and 59.1 percent rate at 18 months notedrnby this study are much higher than the redefault rates reported by the HomernAffordable Modification Program (HAMP) which accounts for about one-sixth ofrnthe 5.5 million modifications done since 2008. rnHAMP claims that about 27 percent its modifications completed within thatrnperiod (HAMP began modifications in 2009) were delinquent at the 18 month mark.rn 

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