Bums No More, Mortgage Defaulters Good Risks

By Kevin Chiu

Homeowners who default on their mortgages and still make good on their other debts like credit cards and car payments aren’t risky Monopoly Man consumers to lend to and are bums no longer, according to a new study.

The survey was conducted by TransUnion, one of the U.S. largest credit reporting agencies. Among other things that the survey found was that those who defaulted on their mortgages also saw their credit scores rebound faster than others who failed to pay credit cards, auto loans and a variety of other bills.

Consumers who stop paying their mortgages were not able to save more money for a rainy day fund to move into a rental or purchase a home in cash as many have said, the report also found.

“There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession,” said Steve Chaouki, vice president of TransUnion’s financial services unit. “This new market segment that the recession created is an important one for lenders to understand. They have the potential today to be stronger and more reliable customers.”

tightening the belt

Bottom line- consumers prioritize bill payments based on product types and needs, paying on credit cards first in many situations in case they may need to use them in the near term for food and other necessities.

“This recession was unique in that certain consumers who defaulted on mortgages would otherwise be good credit risks. It appears their actions were driven more by difficult economic circumstances than by any inherent inability to manage debt,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.

“This study is critical in that it sheds more light on consumer behavior in a challenging economy,” said Becker. “This study affords lenders greater insight into consumer performance, hopefully leading to a more mutually profitable, long-term relationship between lender and borrower.”