October 1, 2020

Forbearance levels dip in July, TransUnion says

Consumer accounts in forbearance declined across credit products for the first time during the monthslong coronavirus pandemic, credit bureau TransUnion said last week, an indication auto borrowers rolling out of financial hardship are landing on their feet.

Government stimulus programs and lender accommodation programs are largely responsible for the market’s health, though Matt Komos, vice president of research and consulting at TransUnion, said economic stability remains tenuous as the pandemic rages on.

“It’s a reassuring sign that delinquency levels have remained relatively low — especially as the percentage of consumers in financial hardship status has started to decline,” Komos said in a statement.

The total percentage of auto accounts in financial hardship status — defined by factors such as a deferred payment, forbearance program, frozen account or frozen past-due payment — slid from 7.2 percent in June to 6.2 percent in July.

The drop indicates that forbearance accommodations peaked this spring as shelter-in-place orders reduced work hours and drove up unemployment levels.

Satyan Merchant, senior vice president and automotive business leader at TransUnion, told Automotive News that June likely will remain the inflection point for auto loan forbearance accommodations during the pandemic, barring a massive second wave of the virus.

“The continued question looking forward will be, ‘How long can we hold this together as an industry and as Americans?’ ” he said.

While 6.2 percent remains a startlingly high rate of hardship in auto loans on a national scale, it doesn’t guarantee those loans should be written off by lenders in the coming weeks.

“This exemplifies consumers having successfully taken accommodations, reestablished their footing and resumed normal payments,” Merchant said. “Just because a loan is in accommodation status doesn’t mean payments aren’t being received.”

Forbearance levels also dipped for credit cards, mortgages and personal loans, TransUnion said. Overall industry credit performance is relatively unchanged from pre-pandemic times.

Automotive accounts more than 60 days past due slipped to 1.4 percent last month, down from 1.5 percent in June. Thirty-day delinquencies also improved slightly in auto lending, dipping to 3 percent in July from 3.2 percent the previous month.

Still, the Chicago company expects delinquencies to rise because of macroeconomic factors promulgated by the outbreak.

“As more accounts come out of financial hardship status, lenders will be actively monitoring payment behaviors to gauge whether consumers can withstand these economic pressures and do so without government assistance or lender support,” Komos said. “How consumers are able to manage debt levels and access to credit will be a key indication of economic recovery in the coming months.”