During the pandemic, as Americans struggled to keep up with all their payments amid stay-at-home orders and the economic shutdown, paying their mortgage remained a priority.
TransUnion conducted a payment hierarchy study focusing on the three most popular credit products in the country – auto loans, credit cards and mortgages. About 27.8 million consumers held all three loans as of the third quarter of 2020, and mortgages were clearly prioritized over the other credit products.
But while this dynamic has held true since the fourth quarter of 2017, the pandemic caused even greater prioritization of mortgages over the other credit products.
For those consumers possessing auto loans, credit cards and mortgages, the delinquency rate for payments more than 30 days past due at 12 months following observation was lowest for mortgages, at 0.75 percent, as of the third quarter. Auto loans had the second lowest delinquency rate at 1.13 percent, followed by credit cards at 1.95 percent.
TransUnion explained that this is likely connected to the growth in home prices over the last several years as housing markets across the country have remained strong, and consumers have more of a desire to protect the equity in their homes. Lockdowns and the shift to work/school from home also caused keeping current on home loan payments to take on increased importance in 2020.
“Mortgage is once again the clear priority for U.S. borrowers,” said Matt Komos, TransUnion head of research and consulting in the U.S. “The mantra, ‘you can’t drive your home to work’ doesn’t have the same effect when millions of Americans are waking up, showering, eating breakfast and taking only a few steps to their home office.”
Of course, these results were also heavily influenced by widespread mortgage forbearance programs. The share of mortgages in forbearance continues to retreat from last summer’s highs, but approximately 2.3 million homeowners are still not paying their monthly mortgage payments, according to the latest numbers from the Mortgage Bankers Association (MBA).
TransUnion’s survey highlights that Americans valued their mortgages over other loans because the credit product has the highest perceived value of all expenses. Furthermore, six in 10 consumers expected to receive a call from their lender if they missed one mortgage payment and more than half (52 percent) said their missed payment would have a negative impact to their credit score. Nearly one in five consumers (17 percent) said they would experience foreclosure or their home would be repossessed if they miss a mortgage payment.
Prioritization of payments shifted if a consumer possessed only one card. Of the 27.8 million consumers in the study possessing an auto loan, credit card and mortgage, only 5.3 million people had one credit card in their wallet. For this subset of the population, mortgage remains the clear priority, but consumers with only one credit card valued the card more than their auto loan beginning in the second quarter of 2020. This shift suggests the heightened importance of maintaining access to at least one credit card as online commerce and digital transactions have become a daily necessity for many households.
“The pandemic has changed so much in the world, but understanding why consumers are making important credit decisions only serves to better help the lending ecosystem in the future,” Komos said.