Consumer Delinquencies Reach New Low & Trend Is Set To Continue
Consumer delinquencies fell last quarter to their lowest point in at least 15 years, according to quarterly data released early October by the American Bankers Association (ABA).
The percentage of overdue closed-end loans was 1.35% in the second quarter, down three basis points from the first quarter. The ABA’s composite ratio tracks delinquencies in eight closed-end installment loan categories including personal, home equity and direct auto loans. It defines a delinquency as a payment that’s overdue by 30 days or more.
The latest figure was the lowest since at least 2001, and it marked nearly 4 years of delinquencies below the 15-year average of 2.21%.
A big reason for the latest decline was the 30-day delinquency rate on home equity loans, which dropped four basis points from the first quarter to 2.70%.
“Rising home prices have restored equity, providing even more incentive for borrowers to stay current with their payments,” ABA Chief Economist James Chessen said in a news release.
However, home equity line delinquencies rose six points, to 1.21%.
In general, delinquencies fell in three of the eight closed-end loan categories compared with the first quarter. Among the ones on the rise were delinquencies in indirect auto loans, which rose 11 basis points to 1.56%.
The ABA studies consumer delinquencies in three categories of open-end loans. One of those, bank card delinquencies, ticked up one basis point to 2.48%, but that figure is far below the 15-year average of 3.70%. Consumers’ continued financial discipline is said to have balanced out the increase in purchase volumes.
The ABA predicts that delinquencies will hover around historic lows “over the next several quarters,” in part because consumers have strong debt-to-income ratios and because bankers are said to be more cautious about gauging applicants’ ability to pay. Yet risk factors lurk in the background.
“There are of course concerns surrounding the pace of the economy,” Chessen added. “It’s been slow the first six months, and the election has added uncertainties about what the future course of the economy will be.”
Jobs data (like the monthly Labor Department report), corporate layoffs, trends in healthcare expenses and even divorce patterns need to be watched closely, Chessen noted.
“Job loss, divorce and health care costs have always been the big three drivers of consumer delinquencies, and they will continue to be that way,” Chessen said.
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