A new study found that borrowers who have completed a loan modification have lower delinquency rates on other consumer loan products than similar borrowers whose mortgages haven’t been modified. It also found a much better performance level for borrowers who defaulted on their mortgages but not on other consumer credit.
Since the mortgage meltdown kicked into high gear in mid-2007, around 5.3 million loan modifications have been completed, according to data through April 30 from HOPE NOW and the Department of the Treasury. The total reflects around 0.8 million active permanent modifications completed under the Home Affordable Modification Program and 4.5 million proprietary modifications.
The HOPE NOW data additionally showed that an average 20 percent of borrowers on modified mortgages became delinquent again after 90 days. The recidivism rate was based on loans that performed satisfactorily for at least six months prior to default and had been modified as much as 18 months prior.
TransUnion announced Thursday the results of a study that found new consumer loans opened after a 120-day mortgage delinquency had occurred performed better for borrowers who had a loan modification than borrowers whose mortgages weren’t modified.
On auto loans, the 60-day delinquency rate was 6.06 percent after 12 months for borrowers who had a modification, while borrowers with non-modified mortgages had an 11.40 percent delinquency rate on their car loans.
Credit card delinquency for borrowers with modified mortgages was 13.63 percent after one year compared to a 17.13 percent 60-day rate for borrowers who didn’t get modifications.
“This improved performance occurred despite the fact that nearly six-in-10 mortgage modifications went 60 or more days delinquent 18 months following the modification date,” TransUnion said.
The report was based on a review of more than 5 million mortgages originated prior to 2008 that became at least 120 days delinquent between January 2008 and June 2010. Around 559,000 of the loans were modified between January 2008 and July 2011.
Another finding from TransUnion’s study was that consumers who became at least 120 days past due on their mortgages but stayed current on other consumer credit are a lower risk than their counterparts who defaulted on mortgages and other consumer credit. The findings held true even when their VantageScores were the same.
For mortgage-only defaulters, 60-day auto loan delinquency was 4.03 percent one year after origination compared to an 8.65 percent rate for consumers who defaulted on their mortgages and other consumer loans.
Credit-card delinquency was only 6.55 percent for mortgage-only defaulters, while the 60-day rate shot up to 27.69 percent for borrowers who had multiple delinquencies.
