Hardship Accommodations Falling at Slower Rate, New Data Shows

Renewed federal assistance to consumers has reduced the chances that many loans now in accommodation will become delinquent or charged off later on, a TransUnion executive said.

A report released Tuesday by the Chicago credit reporting agency found the percentage of accounts in some form of forbearance or other hardship accommodation was 2.87% as of Dec. 31, down from a peak of 2.87% on May 30. However, the pace of decline has been slowing.

Jason Laky, EVP and head of TransUnion’s financial services business, said those accounts are not counted in delinquencies or charge-offs, and lenders are hoping few will join them down the road.

“The expectation among lenders and consumers is that this is a temporary hardship created by the impact of COVID. At the end, the consumer will be a good position to make their payments again,” he said.

The prospects for those loans remaining current improved with the federal relief in December that included $600 direct payments, and will improve further if another relief package is passed by Congress, Laky said.

TransUnion’s latest Financial Services Monthly Industry Snapshot Report included all accommodations on file at month’s end and any accounts that were in accommodation before the COVID-19 pandemic. While the percentage of accounts in this status has decreased, the declines have slowed in recent months.

A TransUnion survey of consumers with loan accommodations found:

• 25% of consumers want to resume regular payments and work with the lender to extend the length of the loan;
• 19% of consumers want to extend the accommodation; and
• 17% of consumers would like to create a repayment plan to catch up while making larger payments.

The largest percentage of hardship accounts is among mortgages. It rocketed from 0.48% on March 31 to a peak of 7.48% by May 30. The percentage has gradually dropped and stood at 5.36% on Dec. 31.

“Imagine yourself sitting in the middle of March facing the pandemic. Your employer has shut down temporarily or reduced hours,” Laky said.

“It makes a lot of sense for you to pursue an accommodation on your largest monthly payment — even if you don’t need it, or you might not know if you need it next month or not,” he said.

The Mortgage Bankers Association’s Forbearance and Call Volume Survey showed 2.7 million homeowners were in forbearance plans, or 5.37% of mortgages, as of Jan. 10, down from 5.46% of 5.46% of servicers’ portfolio volume a week earlier.

MBA chief economist Mike Fratantoni said the rate of exits from forbearance picked up in early January, but remains much lower than exit rates in October and early November.

“Job market data continue to indicate weakness, and that means many homeowners who remain unemployed will need ongoing relief in the form of forbearance,” Fratantoni said. “While new forbearance requests remain relatively low, the availability of relief remains a necessary support for many homeowners.”

Many of those accounts TransUnion counts as being in hardship status are held by consumers paying some, most or all of their obligations. Others are still in need of the help, which for many will start running out in March or April.

To help lenders get a better sense of which borrowers are using accommodations and need help, TransUnion has begun selling an add-on service called the CreditVision Acute Relief Suite. It shows what accommodations borrowers are using at other financial institutions, their balances and their payment behaviors.

“There are still hundreds of thousands of consumers in some form of financial hardship status, and the more lenders can do to understand their customers’ financial situations, the better they can assist them and build trustworthy, long-lasting relationships,” Laky said.