Housing Finance Policy Center Lunchtime Data Talk Harnessing Credit Bureau Data for Research: Boomerang Buyers and Strategic Defaulters Ken Brevoort, Consumer Financial Protection Bureau Michele Raneri, Experian March 30, 2016
© 2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Confidential.
Harnessing Credit Bureau Data for Research: Boomerang Buyers and Strategic Defaulters
Michele Raneri
3 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
The credit bureau role supporting the public and private sectors
4 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Historical credit data
Archives: Monthly snapshots of entire credit file
10+ years of historical credit data
Depersonalized – no PII
Does not post an inquiry to consumer credit file
Persistent match keys enable longitudinal analysis
Data: ► TIP: Trades, Inquiries, public records
► Includes: account type, balance, limits, payment status
► Premier Attributes: Aggregated consumer credit data
► Credit Scores: VantageScore, FICO, custom scores
► Models: Debt to Income (DTI), Asset Insight, Income Insight
► Demographics: Non-FCRA data by consumer or geography
► External sources: Property data, lists, application data
Using Credit Bureau Data to Illuminate Mortgage Market Trends Ken Brevoort Section Chief, Credit Information & Policy Office of Research Consumer Financial Protection Bureau
Harnessing Credit Bureau Data for Research Housing Finance Policy Center Data Talk March 30, 2016
The views expressed are those of the author and do not necessarily reflect those of the Consumer Financial Protection Bureau or the United States.
Why Use Credit Bureau Data for Mortgage Research?
Many alternatives exist for studying mortgages
Underwriting datasets (e.g., HMDA)
Servicing datasets (e.g., LPS, CoreLogic)
National Mortgage Database • Based on Experian credit records
Credit bureau data offer:
Near complete coverage of mortgage loans
Information on wide array of credit products (i.e., student loans, auto loans)
Information on consumers without mortgages • Potential first-time homebuyers
• Former homeowners
6
Part I. First Time Homebuyers
7
Data
Consumer Financial Protection Bureau’s Consumer Credit Panel
De-identified credit records on 5 million consumers Data provided on a tradeline level
Similar information for co-borrowers
Quarterly data from June 2004 – present
Also includes archives from 9/2001, 9/2002, 9/2003
8
First-time Homeowners, 2001 - 2007
9
First-time Homeowners, 2001 - 2007
10
First-time Homeowner Hazard Rates, 2001-2007
11
First-time Homeowners Hazard Rates, 2001-2007
12
First-time Homeowners Hazard Rate, 2001-2007
13
First-time Homeownership, 2001-2009
14
First-time Homeownership, 2001 - 2014
15
First-time Homeowner Hazard Rate, 2008 - 2014
16
First-time Homeowner Hazard Rate, 2008 – 2011
17
First-time Homeowner Hazard Rate, 2012-2014
18
First-time Homeowner Hazard Rate, 2012-2014
19
Estimated Hazard Rates
20
First-time Homeownership, 2001 - 2014
21
The “New Normal” for First-time Homebuyers?
22
The “New Normal” for First-time Homeowners?
23
Part II. Foreclosure’s Wake
24
Data
Federal Reserve Bank of New York/Equifax Consumer Credit Panel
Quarterly credit records starting in 1999Q1
334,693 individuals whose mortgage entered foreclosure during 2000-2009
Definitions:
“Foreclosure Start Quarter” – quarter in which mortgage enters foreclosure
“Pre-delinquency Period” – quarter before foreclosure when record last free of mortgage delinquency
25
Mean Credit Scores, Historical Cohorts
26
Mean Credit Scores, Recent Cohorts
27
A More Focused Definition
A credit score “recovers” when it returns to its pre-delinquency level
Once a credit score returns to its pre-delinquency level, it is assumed to remain recovered in all subsequent periods
28
Credit Score Recovery, Historical Cohorts
29
Credit Score Recovery, Recent Cohorts
30
Why Are Scores Persistently Low?
Reason is unknown
Cannot be directly attributed to foreclosure after 7 years
Most likely candidate explanation is payment delinquency
Generally most important explanatory variables in credit bureau based models
Look at share of borrowers who are 90 days past due or worse
31
Delinquency Rate on All Credit, Historical Cohorts
32
Delinquency Rate on All Credit, Recent Cohorts
33
Credit Card Delinquency Rates
34
Auto Loan Delinquency Rates
35
Flawless Payment Sample
Increase in delinquency may reflect gradual change where borrowers just becoming delinquent more frequently
Identify subset of the populations with a flawless payment history before foreclosure
No evidence of missed payments more than 6 months before foreclosure period
At least 3 years (12 quarters) of payments made
36
Delinquency for Flawless Payment Sample
37
Final Thoughts
• Credit bureau data offer a source of high-quality and timely information on consumer credit markets
• Data can be used to
• Monitor the functioning of major consumer credit markets
• Better understand consumer behavior
• Evaluate the effectiveness of new regulations or other developments
• Though de-identified, data can be combined with information from other sources while maintaining consumer anonymity
• Used as a sampling frame for mail surveys
• Combined with other administrative data
38
39 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Boomerang buyer and fallen angels?
Fallen Angels Boomerang Buyers
Mortgage borrowers who had foreclosed or short sold
and have since opened a subsequent mortgage
Consumers who had unexpected default during
the Great Recession and are now recovering
Mortgage Market
40 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Historical foreclosure rates
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Jan-00A
ug-00M
ar-01O
ct-01M
ay-02D
ec-02Jul-03Feb-04Sep-04A
pr-05N
ov-05Jun-06Jan-07A
ug-07M
ar-08O
ct-08M
ay-09D
ec-09Jul-10Feb-11Sep-11A
pr-12N
ov-12Jun-13Jan-14A
ug-14M
ar-15O
ct-15Fo
recl
ose
Rat
e (%
)
Source: CoreLogic
41 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Historical short sale rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jan-06M
ay-06Sep-06Jan-07M
ay-07Sep-07Jan-08M
ay-08Sep-08Jan-09M
ay-09Sep-09Jan-10M
ay-10Sep-10Jan-11M
ay-11Sep-11Jan-12M
ay-12Sep-12Jan-13M
ay-13Sep-13Jan-14M
ay-14Sep-14Jan-15M
ay-15Sep-15
Shor
t Sal
e R
ate
(%)
Source: CoreLogic
42 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Data analysis
43 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Analysis design Now compared to pre-recession
2001 2007 2015
Pre-recession Foreclosure/Short Sale
Window
2006 2010
Post-recession Foreclosure/Short Sale
Window
Timeframes evaluated: 2001-2007 vs. 2007-2015
44 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Different types of buyers
At the time of foreclosure or short sale…
Owner occupied
FIRST MORTGAGE TRADE 1
Second home
FIRST MORTGAGE TRADES 2
Investor
FIRST MORTGAGE TRADES 3+
45 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Rate of foreclosures that boomeranged is up 2.3%
2001-2007 2001-2007 Foreclosures Boomerangs Boomerang rate
Owner occupied 1,455,000 89,000 6.2%
Second home 172,000 69,000 40.1%
Investors 34,000 15,000 45.1%
TOTAL 1,661,000 174,000 10.5%
2007-2015 2007-2015 Foreclosures Boomerangs Boomerang rate
Owner occupied 3,940,000 351,000 8.9%
Second home 620,000 103,000 16.7%
Investors 389,000 75,000 19.3%
TOTAL 4,949,000 529,000 10.7%
2.3% Change
46 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
…and short sales showing a similar trend, up 8.9%
2001-2007 Short Sales Boomerangs Boomerang Rate Owner occupied 63,000 8,000 12.4%
Second home 16,000 10,000 61.7%
Investors 4,000 3,000 68.0%
TOTAL 83,000 21,000 24.6%
2007-2015 Short Sales Boomerangs Boomerang Rate Owner occupied 450,000 108,000 24.1%
Second home 124,000 42,000 33.9%
Investors 83,000 25,000 30.5%
TOTAL 657,000 176,000 26.8%
8.9% Change
2001-2007
2007-2015
47 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Analysis design Focus on post-recession
2001 2007 2015 2010
Post-recession Foreclosure/Short Sale
Window
Timeframes evaluated: 2001-2007 vs. 2007-2013
48 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
715 719
587 606
681 716
500550600650700750
Fallen Angels
VantageScore® migration of foreclosed population
559 599
531 565
617 675
400450500550600650700 Overall
Before Event As of Event After Event
Foreclosure Non-Boomerang Buyer Foreclosure Boomerang Buyer
Foreclosure Non-Boomerang Buyer Foreclosure Boomerang Buyer
34
110
28 86
113 128 94
110
49 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
722 727
622 642 706 728
500550600650700750
Fallen Angels
VantageScore® migration of short sale population
590 631
566 608
653 698
400450500550600650700
Overall
Before Event As of Event After Event
Short Sale Boomerang Buyer
Short Sale Non-Boomerang Buyer Short Sale Boomerang Buyer
Short Sale Non-Boomerang Buyer
80 86
23
84 110
90 24 87
50 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Average mortgage balance comparison
$286,703
$336,713 $331,962 $352,831
$228,009
$271,671
$307,717 $325,307
Fallen Angels Subprime
Foreclosure Short Sale
Non-Boomerang Buyer
Boomerang Buyer
Non-Boomerang Buyer
Boomerang Buyer
51 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
How are Boomerang buyers paying debts now?
52 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Boomerang buyer current delinquency rates Foreclosed population
2.1%
4.6% 4.5% 4.2%
6.3%
10.6% 10.2%
0.0% 2.1%
4.6% 6.0%
3.4%
0%2%4%6%8%
10%12%
Auto Bankcard Retail Mortgage
Boomerang Non-Boomerang US Avg
53 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Boomerang buyer current delinquency rates Foreclosed population
2.1%
4.6% 4.5% 4.2%
6.3%
10.6% 10.2%
0.0% 2.1%
4.6% 6.0%
3.4%
0%2%4%6%8%
10%12%
Auto Bankcard Retail Mortgage
Boomerang Non-Boomerang US Avg
2.6%
4.8% 5.3%
3.7%
1.2%
4.1% 3.5% 4.6%
1.2%
4.2%
2.2%
5.9%
2.1%
4.6% 6.0%
3.4%
0%
2%
4%
6%
8%
Auto Bankcard Retail MortgageOwner Occupied Second Home Investor US Avg
54 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Boomerang buyer current delinquency rates Short sold population
1.3% 3.4% 3.3% 2.2%
4.6%
10.4%
7.4%
0.0% 2.1%
4.6% 6.0%
3.4%
0%
4%
8%
12%
Auto Bankcard Retail Mortgage
Boomerang Non-Boomerang US Avg
55 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Boomerang buyer current delinquency rates Short sold population
1.5%
3.5% 4.0%
1.9% 1.0%
3.3% 2.8% 1.9%
1.1%
3.1%
1.3%
4.1%
2.1%
4.6%
6.0%
3.4%
0%
2%
4%
6%
8%
10%
Auto Bankcard Retail MortgageOwner Occupied Second Home Investor US Avg
1.3% 3.4% 3.3% 2.2%
4.6%
10.4%
7.4%
0.0% 2.1%
4.6% 6.0%
3.4%
0%
4%
8%
12%
Auto Bankcard Retail Mortgage
Boomerang Non-Boomerang US Avg
56 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
4%
12%
19%
23%
37%
4%
15%
22% 23%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2011 2012 2013 2014 2015
% o
f Tot
al O
pene
d
Year Mortgage Opened
Foreclosed Short Sold
Of those that foreclosed or short sold after 2007 AND boomeranged – when was the mortgage opened?
57 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Mortgage seekers
Foreclosure Short Sale
10.7% 26.8%
19.1% 17.6%
70.2% 55.6% RENT
58 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Mortgage seekers
Averages SEEKING NOT SEEKING SEEKING NOT SEEKING
VantageScore 620 616 656 653
Income 51K 44K 57K 49K
Auto Delinquency 6.9% 6.2% 4.9% 4.6%
Bankcard Delinquency 12.1% 10.2% 11.1% 10.2%
Retail Delinquency 10.5% 10.1% 7.5% 7.4%
Foreclosure Short Sale
59 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters
Individuals identified on the credit file as consumers who stopped paying on their first mortgage while paying perfectly on all other debts are STRATEGIC DEFAULTERS
60 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters returning faster
Data from 2007-2013 @ Time of Default
18.5%
26.3%
9.5%
13.9%
Foreclosure Short Sale
Boomerang Non-Boomerang
The percentage of boomerang buyer population who were strategic defaulters at the time of their event
61 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters Current delinquency rates on foreclosed population
1.0%
2.9% 2.2%
3.4%
2.1%
4.6%
6.0%
3.4%
0%
2%
4%
6%
8%
Auto Bankcard Retail Mortgage
Boomerang US Avg
62 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters Current delinquency rates on foreclosed population
1.3%
2.7% 2.6% 2.4%
0.7%
2.8% 1.8%
4.6%
0.6%
3.6%
1.4%
5.0%
2.1%
4.6%
6.0%
3.4%
0%
2%
4%
6%
8%
Auto Bankcard Retail MortgageOwner Occupied Second Home Investor US Avg
1.0%
2.9% 2.2%
3.4%
2.1%
4.6%
6.0%
3.4%
0%
2%
4%
6%
8%
Auto Bankcard Retail Mortgage
Boomerang US Avg
63 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters Current delinquency rates on short sold population
0.7% 2.6% 2.3%
1.5% 2.1%
4.6%
6.0%
3.4%
0%1%2%3%4%5%6%7%
Auto Bankcard Retail Mortgage
Boomerang US Avg
64 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Strategic defaulters Current delinquency rates on short sold population
0.7% 2.8% 2.5% 1.5%
0.8% 2.7% 2.5% 1.5%
0.0% 0.5% 0.0% 2.0%
2.1%
4.6%
6.0%
3.4%
0%
2%
4%
6%
8%
Auto Bankcard Retail MortgageOwner Occupied Second Home Investor US Avg
0.7% 2.6% 2.3%
1.5% 2.1%
4.6%
6.0%
3.4%
0%1%2%3%4%5%6%7%
Auto Bankcard Retail Mortgage
Boomerang US Avg
65 © 2016 Experian Information Solutions, Inc. All rights reserved. Experian Confidential.
What is the profile of a strategic default?
drastic home price declines than other states tend to have
© 2015 Experian Information Solutions, Inc. All rights reserved. Experian Public. 6
States such as California and Florida that have suffered more
higher rates of strategic default
Geographic areas
Consumers with a higher mortgage origination balance are more likely to strategically default
Origination mortgage balance
Strategic defaulters are more likely to stay current on their home-equity lines prior to mortgage default
Home equity line default behavior
Higher VantageScore® borrowers were more likely to strategically default
Origination VantageScore®
Consumers who had multiple mortgages were more likely to default on one of them
Number of first mortgages
66 © 2016 Experian Information Solutions, Inc. All rights reserved. Experian Confidential.
Internal Use
For additional information: [email protected] Twitter Handle: MLRaneri