Mortgage

TransUnion: Accounts in financial hardship continued to decline in August

However, those still in accommodation programs may be at higher risk of default

For the second consecutive month, the total percentage of accounts in “financial hardship” for auto, credit card, mortgage and personal loans fell across the board in August, according to a consumer credit snapshot by TransUnion. In particular, the percentage of accounts with mortgage loans in financial hardship declined below 6% for the first time since April to 5.92% in the month of August.

However, borrowers may not be out of the woods just yet as TransUnion pointed out that though serious delinquency declined, an uptick in accounts 30 days past due (DPD) may be an early indication that mortgages and auto loans will default and potentially be charged off.

“This uptick for both products could signify that consumers are starting to roll forward on deferred payments as they come off of hardship programs,” said Matt Komos, vice president of research and consulting at TransUnion. “However, it’s still much too early to tell. It could simply be a missed or delayed payment that is late by a few days or weeks, though the consumer’s intention is still to make the payment.”

According to the report and TransUnions’s Financial Hardship Survey, 52% of Americans have been financially impacted by the COVID-19 pandemic – the lowest reported level since the study’s origination in March. Of those impacted, three-quarters (75%) voiced concern about their ability to pay current bills and loans and 48% in particular worry about paying their mortgage.

Many heated debates have materialized in regards to whether lenders have properly communicated with their borrowers on their options when entering and exiting accommodation programs. According to the report, Millennials were most likely to reach out to companies they have an account with to discuss payment options (67%), while only 42% of Baby Boomers did the same.

“A significant percentage of consumers utilized financial accommodations to defer or freeze payments during the early stages of the pandemic. As the first wave of consumers exit accommodation and a period of excess liquidity, they are returning to their debt obligations and continuing to perform,” said Komos.

According to Komos, consumers who still remain in hardship are at higher risk to face income losses and thus have more difficulty exiting these programs than consumers who may have entered into hardship programs as a precautionary measure. According to Black Knight data, 3.7 million U.S homeowners sat in forbearance as of Sept. 11. – a stark decline from May’s peak of 4.7 million.

While 53% of respondents reported making normal payments on their mortgage loans, 14% claimed they don’t know how they are going to pay their next bill.

“Many consumers have continued to make payments even when enrolled in financial accommodation plans. The real litmus test in regards to consumer credit health will become apparent in the coming months when these safeguards begin to expire and consumers have less payment flexibility,” concluded Komos.

According to the survey, about one-third of impacted consumers are turning to savings to pay bills or loans and 13% said they plan to open new credit cards. Despite these concerns, data from the monthly snapshot found that consumers are continuing to make payments, as the average credit card balance per consumer dropped to $5,127 in August, compared to $5,686 the previous year, the report said.

Looking ahead, the most popular form of repayments among those with accommodations on loans is to create a payment plan to catch up gradually while making regular payments (31%), followed by extending accommodations another few months (29%).

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