Research Shows Mortgage Delinquencies Rise for Older Consumers – Business Intelligence Info

Research Shows Mortgage Delinquencies Rise for Older Consumers – Business Intelligence Info

FICOresearchconsistentlyshowsthatolderconsumershavehigherFICO?

Scoresthantheiryoungercounterparts。

ButarecentreportbytheMortgageBankersAssociation(MBA)providesevidencethatpeoplebecomelessreliableatmakingtheirmortgagepaymentsastheyage。

Canbothoftheseassertionsberight?

Togettothebottomofthis,FICOconductedfreshresearchoncreditbehaviortrendsbyage。

OurstudyrevealednotonlythatmortgagedelinquencyratesriseforUSconsumersbeyondacertainage,butthatthesedelinquencyincreaseswereobservableacrossotherloantypes。

Isthiscauseforconcern?

AndwastheMBAcorrectintheirconclusionthatdecliningmemoryandothercognitiveskillsarethemaincontributingfactor?

Inthispost,I’llshareourresearchfindingsanddrawafewconclusionsbasedonwhatweseeinthedata。

DelinquencyTrendsbyAge

Forthisresearch,weexaminedpaymentbehaviorusingcreditbureaudataasofJanuary2016。

Thefollowingchartshowstheseriousdelinquencyratebyageoverthepriortwoyearsforvariouscreditproducts。

Theanalysisislimitedtoconsumerswithactivityduringtheperiod。

Keepinmindthatbecauseoflowcounts,wegroupedages86orolderatthegroup’smeanageof92。

(Andasareminder,theFICO?

Scoredoesnotconsiderageinitsscorecalculation。

)

Weseethat90+delinquencyratesformortgagesandotherclosed-endloansreachtheirlowestpointsforconsumersintheirlate60sorearly70s。

Autoloanshavetheirlowestdelinquencyrateswhenconsumersare68。

Theminimumdelinquencyrateformortgagesoccursatage69。

Conversely,delinquencyratesforrevolvingtradelines(whichincludecreditcards)decreasethroughoutconsumers’lives。

Thefollowingtablesummarizesthepeaksandvalleysofthepreviouschart:

Formostloantypes,thehighestdelinquencyratespriortothoseseeninlaterlifeoccurwhenconsumersareintheir20sandstartingtotakeloans。

Onlymortgagedelinquenciesreturntolevelscomparabletotheirpeakatage44。

Delinquencyratesdoincreaseforolderconsumersfortheirautoloans,butthoseratesdon’tapproachtheratesseenforconsumersintheir20s。

AreTheseFindingsCauseForConcern?

Whiledelinquencyratesdoincreaseforolderconsumers,theyrepresentarelativelysmallportionofthetotaldebttrackedbythebureaus。

Asevidence,thischartbreaksdownUSdebtbyageandloantype:

Thisanalysisincludesallconsumerswithatleastoneactivetrade。

Foralevelcomparison,wedividedtheseconsumersbyagesothateachofthefivegroupsrepresents20%ofthebureaupopulation。

Consumersaged67orolderrepresent20%ofthebureaupopulation,buttheyhaveonly11%ofthetotaldebtonthebureau–andonly11%ofmortgagebalances。

Thus,whiledelinquencyratesincreaseonthispopulation,theyhavelesstotaldebtthanyoungerAmericans。

Thisdataindicatesconsumerspayofftheirdebtastheyreachretirementage。

Infact,whenwedugdeeper,wefoundthatolderAmericanstendtocloseouttheirautoloansandmortgages,butkeepatleastonerevolvingtrade,suchasacreditcard。

Becauserevolvingdelinquencyratesdeclinecontinuouslyasconsumersage,andbecauseconsumerstendtoclosetheirotherloans,thereisnosurprisethatFICO?

Scoresincreaseasconsumersage,despitethefactthatdelinquencyratesincreaseforsomeloantypes。

Ultimately,ourresearchshowsthatolderAmericanshavelessdebtthanyoungerconsumers,andthatthedelinquencyrateincreasesreturntolevelssimilartoorlowerthanthoseofyoungpeoplejuststartingtoestablishacredithistory。

Sowhilethistrendiscertainlysomethingforlenderstokeepontheirradar,it’snotlikelytoplayasimportantaroleondelinquencyratesasotherfactorssuchasUSeconomichealth。

IsFailingMemorytheCause?

AsobservedbytheMBA,mortgagedelinquencyratesdoincreaseforconsumerspastage68。

TheMBAreportsuggestedthattheseincreasesweredue,inlargepart,tofailingmemoriesinolderconsumers。

Ofcourse,there’snothinginthebureaudatatoeithersubstantiateorcontradictthatassumptiondirectly。

Butwhatweseeinthedatadoessuggestanalternateexplanation。

Above,forinstance,weshowedhowconsumerspayofftheirclosed-endloansastheygetolder。

Muchofthedelinquencyuptickisdrivenbyarelativelysmallnumberofborrowerswhostillhavesizeablemortgageandautodebtsintotheir70sand80s。

Thissuggeststhatsomedelinquenciesmayverywellbeduetoacommonoccurrenceinlending–thosewhohavetheresourcespayofftheirloansovertime,leavingonlythosemorefinanciallystrappedconsumersintheloanpool。

Inaddition,weshowedhowtherewerenotsimilarincreasesindelinquencyratesbyageforrevolvingcredit(e。

g。

creditcards),whichisthepredominantformofcreditusedbythisagegroup。

Thiscontradictsthetheoryaboutailingmemoriescausingtheriseinmortgagedelinquencies。

It’shardtoimaginethatconsumerswouldremembertopaytheircreditcardbutforgetabouttheirmortgage。

Onceagain,financialhealthseemslikeamorelikelyreason。

Nomatterthecause,this–orany–delinquencyincreaseissomethingwerecommendlenderskeepaneyeon。

Tosupportthoseefforts,we’llcontinueourperiodicresearchoncreditbehaviortrendsbyageandsharekeyfindingsonthisblog。

Letsblockads!

(Why?

)

FICO

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