Mortgages, car loans or credit cards: these are the bills people paid first during the pandemic

Mortgage payments have taken priority over other forms of debt repayment over the past year as home has become an essential place for Americans to work, educate their children and stay safe during the pandemic.

Mortgage payments had the lowest rate of 30-day defaults, followed by car loan payments and credit card payments in the third quarter of 2020, according to a study of people who hold these three types of debt by TransUnion , the Consumer Credit Reporting Agency.

TransUnion has reviewed accounts that are 30 days past due, which is usually the first sign of payment difficulties. For the 27.8 million consumers who hold all three types of credit, mortgages had a 30-day overdue rate of 0.75%, car loans followed with a rate of 1.13% and credit cards at 1.95%.

At various times, different credit payments have taken top priority for people. In 2016, car loans were at the top of the hierarchy.

“The auto loan has been really important to people at times because they needed a car to get to work,” said Matt Komos, head of research and consulting at TransUnion in the United States. “And after the housing crisis, in the last recession, when homes lost so much value, credit cards were favored over mortgages.”

But the pandemic presented a completely different set of circumstances, Komos said.

“Home has become so important to so many people this year,” Komos said. “If people have remained employed, maybe they’re working from home now and homeschooling their kids and they want to be sure they have a safe place to be.”

Although paying off the mortgage has been a priority since 2017, rising house prices, a surge in the number of people working from home, and lender relief programs that help struggling borrowers defer payments have widened the gap between the percentage of mortgage defaults and the percentage of delinquent auto loans during the pandemic.

Hardship programs offered by lenders – such as mortgage forbearance – allowed borrowers flexibility and saved them time. If people are more than 30 days overdue because they participate in one of these programs, it will not appear on credit reports as overdue.

This likely helped improve mortgage lending performance as millions of borrowers took advantage of forbearance programs offered by lenders soon after the pandemic hit. The study found that subprime and near-prime mortgage borrowers benefited the most from these programs. Borrowers were able to delay payments and keep their account status open.

While credit card and car loan programs have generally been shorter in duration, mortgage forbearance programs have been extended by several months, and the Consumer Financial Protection Bureau is count now suspend seizures until the end of the year.

Currently, there are 2.3 million homeowners who remain in mortgage forbearance, representing 4.4% of all homeowners with mortgages, according to Black Knight, a mortgage data company.

“As people come out of these hardship programs, what we’re keeping an eye on is the payment shock,” Komos said. “If they haven’t paid their mortgage, what happens to their other debts then? Do we see the payout hierarchy expanding even further due to the importance of the house? »

Maintaining at least one credit card in good standing has also become a priority for credit users during the pandemic.

Before the pandemic, consumers were putting their personal loan payments ahead of their credit cards. And they continued to do so during the pandemic if they had multiple cards, although the gap between credit card payments and personal loan payments has narrowed.

But that priority changed during the pandemic when a person had only one credit card and at least one personal loan. The survey found that consumers prioritize their credit card alone because the loss of this valuable form of payment for online purchases and the perceived consequences associated with late payment would be too great.

Only 5.3 million people in the study of people with the three main types of credit had only one credit card in their wallet. While the mortgage clearly remained the priority, consumers with only one credit card valued it more than their car loan starting in the second quarter of 2020.

These changes, according to the study, show the increased importance of maintaining access to at least one credit card, as online and remote transactions have become a daily necessity for Americans during the pandemic.

“There’s a feeling of, ‘If I can at least keep liquidity available on a card, that’s what’s going to be important when I’m in distress,'” Komos said.

About Galen A. Williams

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