What can credit records tell us about the housing bust?
For many, a credit record might just seem like the deciding factor for whether or not they get a loan. But for researchers, the millions of US credit records are a gold mine of information about consumer activity. At a recent Urban Institute Datatalk, the Consumer Financial Protection Bureau’s Ken Brevoort and Experian’s Michele Raneri, two experts on credit bureau data, explained what this information tells us about the housing bust’s impact on homeownership:
Fewer people are buying homes. Fifteen years of credit bureau data support research predictions and suggest a new normal in first-time homebuyer activity. Since the subprime crisis, fewer consumers have become first-time homeowners, according to Brevoort. And it’s not just that people are waiting longer to buy: the share of people in each age group who own their homes has noticeably declined.
Borrowers with prime credit aren’t bouncing back after a foreclosure. Before the bust, subprime borrowers’ credit scores recovered quickly after a foreclosure, completely regaining subprime credit standing within three years. Prime borrowers (those with credit scores above 660) bounced back from foreclosures as well, but not as far: within three years of a foreclosure, their credit scores usually returned to just 60 percent of their previous standing.
Today’s subprime borrowers have taken longer to regain their footing after the bust but are on the path to bounce back completely. The trajectory for prime borrowers is much slower, however, and they are unlikely to experience full recovery rates.
Fewer investors and vacation homeowners are “boomerang buying.” According to Michele Raneri of Experian, about 11 percent of all consumers secured a mortgage again after experiencing a foreclosure—both before and after the bust. This “boomerang buying” was most prevalent with investors and vacation homeowners before the bust, but that’s changing.
Before the bust, 45 percent of investors and 40 percent of vacation homebuyers secured a mortgage again after foreclosure compared with just 6 percent for full-time homeowners. But after the bust, the boomerang rate for investors and vacation homebuyers dropped to 19 and 17 percent, while the rate for homeowners increased to 9 percent.
Strategic defaulters are returning to the market faster. Strategic defaulters are borrowers who can still pay their mortgage but decide to default, strategically, because they owe more on their home than the home is worth. Raneri used credit bureau data to identify these strategic defaulters by tagging mortgage defaulters who continued to pay their other debt on time, such as credit card, student loan and auto loan debt. If the default was out of need and wasn’t strategic, the other debt would show delinquencies.
Not surprisingly, Raneri found that these strategic defaulters returned to the market faster, becoming boomerang buyers at higher rates than borrowers who defaulted out of necessity. Of strategic defaulters who experienced foreclosure, 19 percent have become buyers again, while 10 percent haven’t returned to the market. Of strategic defaulters who experienced a short sale, 26 percent have become buyers again, while 14 percent haven’t returned to the market.
A man walks his dog on a hilltop overlooking the city and the bay in the early morning hours on Mount Davidson in San Francisco, March 21, 2014. Photo by Marcio Jose Sanchez/AP/File