A single 25-basis-point Federal Reserve hike in short-term rates has not had much effect on consumers' ability to repay, but larger or successive increases could.

That's the takeaway for lenders and servicers from TransUnion's recent analysis of the Fed's 0.25% increase in short-term rates last December.

"It seems like with a 0.25% rate hike consumers have time to respond, a 0.75% or 1% hike might have more of a material effect on consumers " said Ezra Becker, senior vice president of research and consulting at TransUnion in Chicago.

"With a 0.25% rate hike consumers have time to respond, a 0.75% or 1% hike might have more of a material effect," said TransUnion SVP Ezra Becker.
"With a 0.25% rate hike consumers have time to respond, a 0.75% or 1% hike might have more of a material effect," said TransUnion SVP Ezra Becker.

Only 10% of borrowers who TransUnion identified as likely to struggle with a rate hike had a delinquency of 30 days or more on at least one type of debt by the end of March.

Surprisingly, consumers in that group fared better than those in a control group that had no variable rate debt. The control group had a 13% delinquency rate. TransUnion did not break out the delinquency rates for mortgages or any of the other different types of debt in their study.

While most mortgages are currently pegged to long-term fixed rates and might not be directly affected by short-term rate hikes, Fed rate moves can affect the overall debt loads borrowers have with adjustable-rate mortgages, home equity lines of credit or other variable-rate debt. Short-term rate hikes also can affect rates for warehouse financing that nonbanks may use to fund their loans.

Fed rate hikes this year became a risk that lenders and servicers have had to start paying more attention to again after years in which one or none were seen. There have been two other 25-basis-point rate hikes this year, in addition to last December's. The Fed also increased rates by 25 basis points in December 2015.

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