Mortgage holders in June were carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 in non-mortgage debt per borrower, recent research from Black Knight Financial Services shows.
On average, that's $1,400 more non-mortgage debt per borrower compared to one year earlier and nearly $2,600 more than in 2011, the firm's Mortgage Monitor report finds.
As a result, more borrowers are ‘trapped’ in their current homes, as these non-mortgage debt obligations make it harder for them to move up into larger homes.
‘Mortgage lenders know exactly how much debt borrowers are carrying at the point of origination, but often lose sight from that point forward,’ says Ben Graboske, senior vice president of data and analytics for Black Knight, in a release. ‘Non-mortgage debt is another key piece of the home affordability puzzle – the more total debt borrowers are carrying and the higher monthly non-mortgage payments they have, the less money they have to put toward a new home purchase, or potentially even their current mortgage obligations.’
Black Knight arrived at its findings by merging loan-level data from its McDash mortgage performance database with servicing data from Equifax.
Interestingly, but perhaps not surprisingly, Black Knight's report finds that a significant percentage of the non-mortgage debt is related to car loans and not credit cards.
‘The primary driver of this increase is a rise in auto-related debt, which accounted for 81 percent of the overall non-mortgage debt increase over the past four years,’ Graboske says. ‘We also noticed a clear correlation between non-mortgage debt and borrowers inquiring about a new mortgage, with those who have recent mortgage inquiries on their credit reports carrying nearly 40 percent more debt than borrowers who do not.’
Student loan debt is also at all-time high. According to the report, about 15% of mortgage holders are carrying student loan debt, with average balances of nearly $35,000.
‘The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44 percent over that nine-year span,’ Graboske says. ‘While the government-sponsored enterprises hold more than half of all mortgages with accompanying student loan debt, the situation is much more pronounced among Federal Housing Administration (FHA) borrowers. Roughly one quarter of all active FHA loans carry student loan debt, as compared to just 13 percent of GSE loans. In fact, FHA's market share of post-crisis mortgages with student loan debt is nearly twice that of those without, suggesting that borrowers with student loan debt may be willing to trade higher payments in the form of mortgage insurance premiums for reduced down payments.’
The report also finds that the number of borrowers who were underwater on their mortgages decreased by 26% in June compared to May.
What's more, there were 1 million fewer borrowers underwater on their mortgages as of May than at the start of 2015.
‘Over the first five months of 2014, we saw the number of underwater borrowers decrease by 20 percent,’ Graboske said. ‘During that same span this year, that population has dropped by nearly 26 percent to 6.1 percent of active mortgages. That's more than one million fewer borrowers in negative equity positions than there were at the start of the year, leaving just over three million remaining.
‘In California alone, one out of every three borrowers entering the year underwater on their mortgage is no longer in a negative equity position,’ Graboske adds. ‘And while this is undoubtedly good news, some troubled areas still remain. Nearly 500,000 borrowers in Florida still find themselves underwater, and borrowers living in the bottom 20 percent of homes by price around the country make up over 50 percent of the remaining underwater population.
‘Furthermore, when you take into account real estate agent commissions and seller-paid costs, some 5.7 million homeowners may still be 'locked out' of selling their homes due to their current equity positions,’ he adds. ‘So while the improvement is clear, there is still quite some way to go.’