Why This Matters

There has been an increased focus on the “stressed consumer” increasingly missing payments on credit card debt, auto loan debt, and mortgage debt. We want to understand how delinquencies on these debt instruments have been behaved over time—in particular, to what degree they have been correlated. This is important both in terms of understanding the consumer and understanding the willingness among credit risk holders to continue to underwrite credit risk on consumer debt instruments and at what price. The higher the correlation between products, the less benefit an investor gains from owning multiple types of consumer credit.

In addition, some holders of the credit risk on consumer debt instruments may choose to reduce their credit risk at this juncture. Historically, most investors’ only way to reduce credit risk was to sell the underlying instruments. There was no available instrument that allowed investors to hedge against increases in credit risk. In late 2025, Vista Index Services will launch the MDX, an index that measures the credit performance of mortgages underlying Ginnie Mae securities. This index will allow investors to both buy or sell credit risk calculated from the delinquencies of Ginnie Mae borrowers. If the relationships between delinquencies on different types of consumer products were tight, it would suggest this new vehicle might help consumer debt investors reduce their credit risk. That is, credit risk holders would have the opportunity to sell the index to reduce the risk on their portfolios. Given the increase in credit card and auto loan delinquencies, as well as the focus on the increase in Ginnie Mae delinquencies, this is an opportune time to investigate this issue.

What We Found

• Delinquencies on credit cards, auto loans, and home equity lines of credit (HELOCs) are correlated with those on first-lien mortgage debt. We found that within the universe of first-lien mortgage products, Ginnie Mae mortgages, composed of Federal Housing Administration and Veterans Administration loans, have a much stronger correlation to credit card products than do conventional mortgages. HELOCs correlate more strongly with conventional products, results to be expected given the borrowers’ credit score and income characteristics. This suggests that a portfolio of multiple consumer debt products provides limited risk reduction versus a single product, and selling a traded index, such as the MDX, which allows investors to benefit if credit risk increases, could provide a vehicle for portfolio risk reduction.
• We found that delinquencies on various types of first-lien mortgage debt are all highly correlated. In particular, the correlation between jumbo mortgages (those over the size limit for agency mortgages), nonqualified mortgages (non-QM) mortgages not subject to or that do not comply with the qualified mortgage rule—primarily investor properties and self-employed borrowers), and Fannie Mae, Freddie Mac, and Ginnie Mae mortgages is strong. We also found a strong correlation between changes in the MDX historical index and these mortgage products. These results suggest holding a portfolio of different types of mortgages provides little portfolio diversification, and selling the MDX could provide a potential vehicle for investors to reduce the risk in their portfolios.
• We found that the MDX indexes could be used to reduce the risk on government-sponsored enterprise credit risk transfer transactions. That is, there is a high correlation, and selling the MDX indexes could provide a vehicle to reduce credit risk.

How We Did It

For each of these findings, we used different data owing to data availability constraints. For the first part of the analysis, comparing other types of consumer debt with mortgage debt, we used the Federal Reserve Bank of New York Consumer Credit Panel and compared it with the Mortgage Bankers Association delinquency survey. For the second part, we used Fitch-dv01 benchmarks for jumbo and non-QMs, provided by dv01. The agency data were Urban Institute calculations from agency data releases. The final piece of the analysis on the relationship between credit risk transfer securities and the MDX uses data provided by Vista Index Services.