Black Knight Financial Services analyzed U.S. mortgage holders’ levels of non-mortgage-related debt and found those levels are at their highest in over 10 years.
As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, non-mortgage debt among U.S. mortgage holders bears close watching due to its potential impact on both the lending and housing industries.
“Mortgage lenders know exactly how much debt borrowers are carrying at the point of origination, but often lose sight from that point forward,” said Graboske. “Non-mortgage debt is another key piece of the home affordability puzzle — the more total debt borrowers are carrying and the higher monthly non-mortgage payments they have, the less money they have to put toward a new home purchase, or potentially even their current mortgage obligations.
“What we’ve found is that mortgage holders today are carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 per borrower. That’s $1,400 more on average than one year ago, and nearly $2,600 more than in 2011,” he said. “The primary driver of this increase is a rise in auto-related debt, which accounted for 81% of the overall non-mortgage debt increase over the past four years. We also noticed a clear correlation between non-mortgage debt and borrowers inquiring about a new mortgage, with those who have recent mortgage inquiries on their credit reports carrying nearly 40% more debt than borrowers who do not.”
Black Knight found that the student loan debt of U.S. mortgage holders is at all-time high: 15% of mortgage holders are carrying student loan debt, with average balances of nearly $35,000. The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44% over that 9-year span.
While the GSEs hold more than half of all mortgages with accompanying student loan debt, the situation is much more pronounced among FHA borrowers. Roughly one quarter of all active FHA loans carry student loan debt, as compared to just 13 percent of GSE loans.
In fact, FHA’s market share of post-crisis mortgages with student loan debt is nearly twice that of those without, suggesting that borrowers with student loan debt may be willing to trade higher payments in the form of mortgage insurance premiums for reduced down payments.
Leveraging data from the Black Knight Home Price Index, Black Knight also looked at the current state of negative equity among U.S. mortgage holders and found continuing improvement there.
“Over the first five months of 2014, we saw the number of underwater borrowers decrease by 20 percent,” Graboske said. “During that same span this year, that population has dropped by nearly 26% to 6.1% of active mortgages. That’s more than one million fewer borrowers in negative equity positions than there were at the start of the year, leaving just over three million remaining. In California alone, one out of every three borrowers entering the year underwater on their mortgage is no longer in a negative equity position.
“And while this is undoubtedly good news, some troubled areas still remain. Nearly 500,000 borrowers in Florida still find themselves underwater, and borrowers living in the bottom 20% of homes by price around the country make up over 50% of the remaining underwater population,” he said. “Furthermore, when you take into account real estate agent commissions and seller-paid costs, some 5.7 million homeowners may still be ‘locked out’ of selling their homes due to their current equity positions. So while the improvement is clear, there is still quite some way to go.”
Key findings include:
- Black Knight found that U.S. mortgage holders are carrying the most non-mortgage debt they have – an average of approximately $25,000 each – in over 10 years
- Student loan debt among mortgage holders is at an all time high
- Roughly one quarter of all FHA borrowers carry student loan debt, as compared to just 13% of those with GSE loans
- Among mortgage holders, student loan debt has increased by roughly 56% since 2006, to an average balance of nearly $35,000
- The share of borrowers carrying student loan debt has increased by 44% in that same time span
- 48% of mortgage holders have automobile debt as well
- Auto debt accounted for 81% of the increase in overall non-mortgage debt among mortgage holders over the past 4 years
- Credit card debt among mortgage holders, on the other hand, remains near post-crisis loans
- FHA/VA borrowers currently carry the highest levels of overall non-mortgage related debt, but have the lowest original mortgage loan amounts (they also carry the lowest average credit card debt)
- Mortgage holders with a recent mortgage inquiry on their credit report carry nearly $10K (40%) more debt on average than borrowers without
- In the first five months of 2015, the population of underwater borrowers dropped by 1 million (26%) to just 6.1% of all mortgages (just over 3 million)
- Nevada (13.7%) & New Jersey (12%) have the highest remaining rates of underwater borrowers, while Florida has the most in number (500K)
- Borrowers with homes in the lowest 20% of values are 8X more likely to be underwater than those in the top 20%
- Nearly 15% of those with homes in the lowest 20% of values are still underwater, compared to just 1.7% of those in the top 20%
- Some 5.7 million borrowers lack enough equity in their homes to cover the cost to sell them