Mortgage reperformance bearing up, different shopper debt woes rising

Most distressed mortgages emerged from workouts intact in February but the chargeoff rates for auto loans and credit cards are up, in part due to steep housing costs that have contributed to high levels of household leverage.

The majority or 76% of borrowers who completed post-forbearance workouts on distressed homes loans from 2020 on were current at the end of the month, roughly matching the share recorded a month earlier, according to the Mortgage Bankers Association.

With the recovery rate strong and only 0.6% of borrowers remaining in the extraordinary long-term forbearance extended to pandemic hardships, servicers are watching other consumer finance indicators and the broader economy for signs of trouble. Outside of an exception like the 2000s’ housing-driven economic crash, distress tends to hit other types of borrowing first.

“The February results on mortgage performance is welcome news, given recent increases in delinquencies for other credit types such as credit cards and auto loans. However, with the possibility of a recession this year, we may see some deterioration in performance – particularly for government loans,” said Marina Walsh, the MBA’s vice president of industry analysis, in a press release.

Sample chargeoff rates for auto loans, which reflect amounts from borrowers deemed uncollectible,  surged during the first month of the year, jumping to 3.07% from 2.61%, according to a recent Moody’s Investors Service report. The chargeoff rate for credit cards also rose between January and the end of 2022’s fourth quarter, but not quite as steeply, drifting up to 2.86% from 2.37%.

Some problems with credit card performance are linked to the high cost of housing, according to a recent Clever Real Estate survey in which 54% of homeowners said they wouldn’t be able to pay for a $3,000 repair without incurring that type of debt.

While savings is still what the largest group of homeowners in the survey (36%) said they’d use to pay for renovation and maintenance, they’ve been leaning heavily on their cards, with 25% saying they’d turn to credit to settle bills of that type.

“Homeownership costs are certainly playing a role in the rise of credit card debt. Unlike most goods and services impacted by inflation, many homeownership costs appear suddenly, making them harder to budget for than things like gas or groceries,” said Matt Brannon, a data writer at Clever Real Estate. “With so many Americans living paycheck to paycheck, it’s easy to see how one big bill can land someone in serious financial jeopardy.”

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