TransUnion: Borrowers with Modifications Perform Better on Consumer Loans

A new study has found that consumers who received mortgage modifications outperformed those who did not on new consumer loans they opened after their initial mortgage delinquency.   The study, conducted by TransUnion, looked at consumers who were 120 days past due at some point on their mortgages and compared the credit performance of those who had received a loan modification and those with a similar credit score who had not.

The study found that 41.9 percent of mortgages that were modified during the period studied - 2008 to 2010 - were 60 days delinquent on that mortgage at the 12 month mark following modification and 59.1 percent by the end of 18 months.

Generally speaking, borrowers who received a loan modification and then opened a new auto loan or credit card account performed better on those new loans than those who had not received a modification.  For those with modifications 6.06 percent were 60 or more days delinquent on that loan 12 months after opening the account.  For credit cards the rate was 13.63 percent.  Where borrowers had not received a mod the 60 day delinquency rates were 11.40 percent and 17.13 percent.

Within the population of modified mortgages, the study looked at borrowers who had defaulted on their mortgages but on no other loans compared to those with multiple delinquencies. The 12-month recidivism rate for mortgage-only (MO) defaulters was 38.8%, while the recidivism rate for multiple delinquency (MD) borrowers was 46.2%.

The subset of borrowers who had multiple defaults also performed more poorly on new credit than MO borrowers.  The former group at the end of 12 months had a 60 day delinquency rate on auto loans of 8.65 percent and credit cards of 27.69 percent.  The group with only a mortgage default had rates of 4.03 percent and 6.55 percent respectively.

"MO defaulters significantly outperformed MD defaulters on new loans opened after mods even when controlling for credit score," said Charlie Wise, director of research and consulting in TransUnion's financial services business unit. "After 12 months, MO defaulters had an average 45% lower delinquency rate on new auto loans opened following a mortgage mod, and an average 63% lower delinquency rate on new bankcards."

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