KBRA Releases Research – Securitized Consumer Credit Waterfall: Back to the Future

KBRA releases research that examines the way in which consumers have prioritized their financial obligations as the strength of labor markets, the availability of consumer credit, and the level of household asset prices have shifted over time. Of the three major forms of household debt, mortgages have generally ranked at the top of the payment priority hierarchy, followed by auto loans and credit cards.

This traditional payment priority hierarchy was temporarily reordered as a result of the global financial crisis (GFC) and the COVID-induced economic slowdown. However, with national home prices appreciating roughly 40% since early 2020, many mortgage holders now enjoy substantial equity in their homes. This rise in value, coupled with the effect of a meaningful interest rate “lock-in,” has once again firmly entrenched mortgages at the top of the consumer payment hierarchy, which we expect to continue well into the future.

In this report, we examine trends in consumer payment priorities for mortgages, auto loans, and credit cards over the past two decades, using delinquency performance as a guide. We then layer in other forms of consumer debt obligations, introduced into the securitization market more recently, to see where each may fit within this hierarchy.

Click here to view the report.

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1008210

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