July 8, 2010
U.S. consumers continue to chip away at the mountain of debt they've run up.
According to the American Bankers Association's (ABA's) Consumer Credit Delinquency Bulletin loan delinquencies showed broad-based improvement for the third quarter in a row -- a sign of continued modest improvement in the U.S. economy.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 21 basis points to 2.98 percent of all accounts from 3.19 percent of all accounts in the previous quarter.
Bank card delinquencies fell more than half of one percent -- to 3.88 percent of all accounts, which is below the 15-year average (3.93 percent). This is the first time since the second quarter of 2002 that bankcard delinquencies have fallen below four percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
ABA Chief Economist James Chessen said the improvements reflect concerted efforts by consumers to shore up their finances. "It's clear that consumer balance sheets are improving. People are borrowing less, saving more and building wealth. These are all positive signs, " he said.
Chessen added that across-the-board improvements in housing-related loan delinquencies indicate stability is returning to the housing market. "This is the first inkling that stability is taking hold in the housing market, but the pace of recovery will still be long and drawn out," Chessen noted.
Home equity improvement
Home equity loan delinquencies fell for the first time in two years to 4.12 percent of all accounts from 4.32 percent in the previous quarter. Home equity lines of credit delinquencies fell nearly a quarter percent to 1.81 percent of all accounts from 2.04 percent in the previous quarter. Property improvement loan delinquencies fell to 1.40 percent of all accounts from 1.63 percent in the previous quarter.
"The overall risk in banks' consumer loan portfolios is improving and will continue to do so," Chessen said. "Banks are putting losses behind them and following a prudent approach to new loans because the on-again, off-again economy is keeping risk high. Regulators are also demanding that banks remain cautious. With job growth creeping back slowly and personal incomes rising a bit, I'm hopeful that improvements in consumer delinquencies will continue," he added.
The first quarter 2010 composite ratio is made up of the following eight closed-end loans.
All figures are seasonally adjusted based upon the number of accounts.
Closed-end loans
Decreased Delinquencies:
• Direct auto loan delinquencies fell from 1.94 percent to 1.79 percent.
• Indirect auto loan delinquencies fell from 3.15 percent to 3.03 percent.
• Home equity loan delinquencies fell from 4.32 percent to 4.12 percent.
• Personal loan delinquencies fell from 3.63 percent 3.61 percent.
• Property improvement loan delinquencies fell from 1.63 percent to 1.40 percent.
Increased Delinquencies:
• Marine loan delinquencies rose from 1.63 percent to 1.93 percent.
• Mobile home loan delinquencies rose from 3.41 percent to 3.65 percent.
• RV loan delinquencies rose from 1.44 percent to 1.58 percent.
In addition, ABA tracks three open-end loan categories:
Open-end loans
Decreased Delinquencies:
• Home equity lines of credit delinquencies fell from 2.04 percent to 1.81 percent.
• Bankcard delinquencies fell from 4.39 percent to 3.88 percent.
Increased Delinquencies:
• Non-card revolving loan delinquencies increased from 1.46 percent to 1.63 percent.
Digging out
For borrowers having trouble paying down debts, ABA advises taking action -- sooner rather than later -- to solve debt problems with the following tips:
• Talk with creditors -- the sooner you talk to them, the more options you have;
• Don't charge more purchases until your problems are solved;
• Avoid bankruptcy -- it's a short-term solution with long-term consequences.
