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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

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Harnessing Credit Bureau Data for Research: Boomerang Buyers and Strategic Defaulters

Michele Raneri

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The credit bureau role supporting the public and private sectors

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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

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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

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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

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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

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Data analysis

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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

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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+

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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

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…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

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Analysis design Focus on post-recession

2001 2007 2015 2010

Post-recession Foreclosure/Short Sale

Window

Timeframes evaluated: 2001-2007 vs. 2007-2013

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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

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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

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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

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How are Boomerang buyers paying debts now?

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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

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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

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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

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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

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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?

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Mortgage seekers

Foreclosure Short Sale

10.7% 26.8%

19.1% 17.6%

70.2% 55.6% RENT

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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

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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

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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

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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

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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

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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

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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

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What is the profile of a strategic default?

drastic home price declines than other states tend to have

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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

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Internal Use

For additional information: Michele.Raneri@experian.com Twitter Handle: MLRaneri