July 24, 2021

Mortgage payments higher priority than cars, credit cards

Vehicle loan payments are expected to take a back seat to mortgage bills for the fourth year in a row when it comes to U.S. consumers’ payment priority. Chicago credit bureau TransUnion’s global payment hierarchy study, published Wednesday, suggests vehicle and credit card payments will finish behind housing costs amid the coronavirus pandemic.

The study, which included a survey of 2,667 consumers in eight countries, analyzed data from first-quarter 2017 through third-quarter 2020, looking at the performance of credit products over a 12-month period.

About 27.8 million U.S. consumers had auto loan, mortgage and credit card bills in third-quarter 2020. Of those consumers, 30-day delinquencies were lowest for mortgages at a rate of 0.75 percent. Auto loans came in second, with a delinquency rate of 1.13 percent, and credit cards were third at 1.95 percent.

Such low delinquency levels indicate consumers have prioritized mortgages over all other credit products, said Matt Komos, TransUnion’s head of research and consulting in the U.S. The trend began in fourth-quarter 2017, he said, the last time the credit bureau updated its payment hierarchy study.

Dynamics such as lender forbearance and hardship programs, government stimulus and unemployment benefits shifted consumer payment prioritization in the past year, Komos said.

“But even with those things, we’re seeing this new payment hierarchy holding up in the pandemic,” he said.

Auto loans fell even further down the priority list if a consumer only had one credit card, the study also found. Of the 27.8 million consumers who had all three credit products, 5.3 million people had just one credit card.

The coronavirus pandemic shuffled consumer concerns as mass shutdowns and layoffs pushed the U.S. economy into recession territory last year. As the pandemic continues, ongoing limitations on in-person services created an uneven recovery that favored remote workers.

The rise in house prices over the last several years has also was a factor, Komos said, and is prompting consumers to work harder to preserve the equity in their homes.

“It’s important for auto lenders to understand who is my borrower and what type of wallet profile does my borrower have,” Komos said, “so that I can understand when the consumer gets into distress, am I potentially at risk of getting deprioritized?”