Credit Agencies Worry as Fresh Delinquencies Rise
TransUnion analyst says the uptick might mean households are having trouble paying – or are perhaps just “sloppy.”
The widespread use of loan forbearance programs has obscured loan quality, but some analysts have been seeing troubling signs among fresh delinquencies.
As the number of loans in forbearance dwindles, jobless claims and unemployment have remained at a record high. Another factor making trends difficult to read was the help millions of Americans received from the $600-a-week in federal unemployment benefits that expired at the end of July.
A report released by TransUnion Thursday found serious delinquency rates continued to fall in August, while 30-day delinquency rates started rising slightly for the two largest payments in the consumer wallet – auto and mortgage.
New delinquencies are watched closely as an early indicator of declining credit quality that might lead to defaults and charge-offs. Experian, another credit reporting company, raised flags on similar trends in a Sept. 15 report, and the Mortgage Bankers Association released a study Sept. 17 showing 11% of renters and 8% of homeowners missed, delayed or deferred at least one payment from April through June.
Matt Komos, vice president of research and consulting at TransUnion, said those who are exiting forbearance programs now tend to have used them as precautions to protect their cash in uncertain times.
“Consumers who still remain in hardship could be more likely to face income losses and thus have more difficulty exiting these programs,” Komos said.
TransUnion’s latest Financial Hardship Survey from the week of Aug. 24 found that COVID-19 continues to financially impact consumers. While the percentage of financially impacted Americans dipped to 52% – the lowest level since the ongoing survey series began in March – the concern among impacted consumers regarding their ability to pay bills and loans remains high (75%).
According to the survey, about one-third of impacted consumers are turning to savings to pay bills or loans, and 13% cited they plan to open new credit cards.
Komos said it is difficult to tell if the uptick in fresh delinquencies reflects financial stress in these households, or “sloppy” bill-paying routines after the forbearance pause.
“Many consumers have continued to make payments even when enrolled in financial accommodation plans,” Komos said. “The real litmus test in regard to consumer credit health will become apparent in the coming months when these safeguards begin to expire and consumers have less payment flexibility.”
Among credit unions, the 60-day delinquency rate for all loans was 0.58% in July, down from 0.65% in July 2019, “due to loan forbearance programs,” according to the CUNA Mutual Credit Union Trends Report released Friday.
“We expect the loan delinquency rate to rise in the fourth quarter and then the charge-off rate to rise in the first quarter of 2021,” CUNA Chief Economist Steven Rick said.
The latest MBA survey showed 6.93% of the nation’s 3.5 million homeowners were in forbearance as of Sept. 13, down from 6.93% a week earlier. The share of Fannie Mae and Freddie Mac mortgages in forbearance dropped for the 15th week in a row to 4.55% — a 10-basis-point improvement among the Government-Sponsored Enterprises (GSE).
“The share of loans in forbearance has dropped to its lowest level in five months, driven by a consistent decline of the GSE share in forbearance,” MBA Chief Economist Mike Fratantoni said.
“However, not only the did the share of Ginnie Mae loans in forbearance increase, new requests for forbearance for these loans have increased for two consecutive weeks,” Fratantoni said. “While housing market data continue to show a quite strong recovery, the job market recovery appears to have slowed, and we are seeing the impact of this slowdown on FHA and VA borrowers in the Ginnie Mae portfolio.”
The Sept. 15 Experian report showed delinquencies in the 30- to 59-day range rose slightly from July to August for mortgages, cars and unsecured personal loans. Later stage delinquencies showed declines from both July and a year ago.
Melinda Zabritski, an automotive analyst for Experian, an Irish company that provides credit reporting and marketing services, said earlier this month that delinquency numbers mean little now, making it difficult to predict charge-offs. But she said she expects lenders to start repossessing more cars by the end of the year as pandemic-related accommodations expire.