TransUnion: Maintaining auto payment no longer top priority

TransUnion discovered another way this pestering pandemic influenced consumer behavior when it comes to individual’s auto financing.

On Wednesday, TransUnion released findings of a payment hierarchy study focusing on the three most popular credit products in the U.S. — auto financing, credit cards and mortgages.

TransUnion indicated approximately 27.8 million consumers held balances within all three categories as of Q3 2020, and analysts found mortgages were clearly prioritized over the other credit products.

In fact, TransUnion said this dynamic has held true since Q4 2017.

However, analysts explained that the pandemic has caused even greater prioritization of mortgages over the other credit products.

For those consumers possessing auto financing, credit cards and mortgages, the 30 days or more past due delinquency rate at 12 months following observation was lowest for mortgages at 0.75%, as of Q3 2020.

TransUnion indicated auto financing had the second-lowest delinquency rate at 1.13%, followed by credit cards at 1.95%.

Analysts pointed out these findings very likely are connected to the growth in home prices over the last several years as housing markets across the country have remained strong, and consumers’ desire to protect the equity in their homes. TransUnion also acknowledged that as lockdowns and the shift to work/school from home permeated during the pandemic, keeping current on home loan payments took on increased importance in 2020.

“Mortgage is once again the clear priority for U.S. borrowers,” said Matt Komos, TransUnion’s head of research and consulting in the U.S.

“The mantra, ‘you can’t drive your home to work’ doesn’t have the same effect when millions of Americans are waking up, showering, eating breakfast and taking only a few steps to their home office,” Komos continued in a news release.

In addition to more people working from home and rising home values, TransUnion noted that mortgage loan performance is likely benefitting from thousands of mortgage borrowers entering accommodation programs soon after the onset of the pandemic.

The study indicated subprime and near-prime credit risk mortgage borrowers have been benefitting the most from these programs as they were able to delay payments and maintain their accounts.

Also of note, analysts spotted a shift in the prioritization of payments if a consumer possessed only one credit card.

Of the 27.8 million U.S. consumers in the study possessing an auto financing, credit card and mortgage, only 5.3 million people had one credit card in their wallet. For this subset of the population, TransUnion said mortgage remains the clear priority, but consumers with only one credit card valued it more than their auto financing beginning in Q2 2020.

Analysts explained this shift suggests the heightened importance of maintaining access to at least one credit card as online commerce and digital transactions have become a daily necessity for many U.S. households.

TransUnion survey data highlighted that U.S. consumers valued their mortgages over other loans because the credit product has the highest perceived value of all expenses.

Furthermore, analysts said six in 10 U.S. consumers expected to receive a call from their lender if they missed one mortgage payment and more than half (52%) said their missed payment would have a negative impact to their credit score.

Nearly one in five consumers (17%) said they would experience foreclosure or their home would be repossessed if they miss a mortgage payment, according to TransUnion.

“The pandemic has changed so much in the world, but understanding why consumers are making important credit decisions only serves to better help the lending ecosystem in the future,” Komos said.

For more information about TransUnion’s payment hierarchy report, go to this website. TransUnion is also hosting a webinar on April 22 to discuss the findings. Registration for that event can be completed here.

Consumers Prioritizing Mortgages Above All Other Major Credit Products

**30+ days past due rate at 12 months for those borrowers possessing all three credit products. Source: TransUnion