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Payment Hierarchy Analysis: A Study of Changes in
Consumer Payment Prioritization from 2007 through 2011

By Matthew Komos, Senior Consultant, Analytic Services
Sean Reardon, Senior Consultant, Business Development, Financial Services, TransUnion
Charlie Wise, Director, Research and Consulting, Financial Services, TransUnion
Ezra Becker, Vice President, Research and Consulting, Financial Services, TransUnion

Executive Summary:

TransUnion has published delinquency statistics for mortgages, credit cards and auto loans on a quarterly basis since before the beginning of the most recent recession. An analysis of those quarterly mortgage and credit card statistics over the course of the recession and beyond has revealed an interesting dynamic: namely, that serious mortgage delinquency had increased over the course of the recession, and has remained persistently at high levels since then, while serious credit card delinquency had declined and remained well controlled through the same time period, hitting record lows in 2011. This finding seemed to conflict with the conventional wisdom which held that, when forced to prioritize debt obligations, consumers would typically pay their secured obligations first. In other words, there were indirect indications that the traditional payment hierarchy was no longer universal.

To gain insight into this apparent anomaly, TransUnion examined the comparative differences in delinquency rates for bankcards and mortgages across all risk segments over several years. The results of the initial study provided insights based on a number of factors, including geography and consumer risk profile, and indicated that there was a new payment-delinquency paradigm being observed. Our update of the study through Q4 2011 has confirmed that this has been a sustained shift in consumer preference. In addition, we have provided additional analysis to introduce auto loans into the payment dynamic alongside mortgages and bankcards, to provide a more complete understanding of consumer payment behavior and preferences through 2011.