SAN DIEGO — Another tried-and-true pillar of lending has been tried in this recession, and is not proving true.
Art Kics, analytical support senior manager for Chicago-based Trans Union, told CUs to beware of an important attitude shift among many Americans. Instead of the traditional "sanctity of the home payment," which more or less guaranteed mortgage lenders would get paid even during trying times, "anecdotally, we've heard consumers know they'll lose their home, so they stop making payments to keep current on everything else."
It's an issue that's likely to be ongoing in the mortgage market, with Kics pointing to ARM resets to occur in 2010 and 2011.
"The average loan-to-value on these loans is 126%," he said. "People are only paying minimums on option ARMs, and many are 90 days behind without a rate reset."
More bad news from Trans Union's research: Kics said loan originations are trending down on all types, including auto, credit card and home equity. Credit unions have benefited to some degree he said, as other lenders beginning in Q4 2008 pulling back on lending with some of that business moving to credit unions. "Where do we go from here?" Kics asked. "There is more skepticism at the approval level, lenders are raising cut-off scores, they are verifying income and debt-to-income ratios, and they are using dual-score matrices."
Kics said credit scores continue to be a "valuable tool" that provides "direction" on loan quality, "but it is not absolute. Even for 'good' credit scores, those 750 or above, 1 out of 100 go bad. So make sure your credit union doesn't get too many of those '1s' on your books."