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Disturbing Trend Identified

FICO release report on mortgage delinquency trends

Feb. 23, 2010

By MortgageDaily.com staff


A new report outlines a disturbing trend where borrowers with high credit scores will default on their mortgage before defaulting on an unsecured credit card.

Default risk for borrowers with high FICO credit scores now exceeds the credit card default risk for those same borrowers, FICO reported today. The findings reverse a "long historic trend."

The Minneapolis-based firm said that in 2005, overall bank-card accounts were over three times more likely to become 90 days delinquent than mortgage loans. But in 2008 and 2009, bank-card accounts were just 1.6 times more likely than mortgages to become 90 days past due.

"And for borrowers scoring high on the FICO score's 300-850 score range, the level of repayment risk actually has become greater for real estate loans than for bank cards," the statement said. "In 2009, 0.3 percent of consumers with FICO scores between 760-789 defaulted on real estate loans, compared to 0.1 percent who defaulted on bank cards."

FICO Chief Executive Officer Dr. Mark Greene said the company has never seen such a situation before.

In the Pacific region, bank cards went from being 6.4 times more likely to default than mortgages in 2005 to being 1.3 times more likely last year.

Another trend identified was increasing credit scores on new borrowers. In 2005, 46 percent of new mortgage borrowers had a FICO score under 700. By 2008, the share with low credit scores dropped to one-quarter.

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