Mortgage and Credit-Card Deliquency Growth Is Slowing

happy couple home

More happy second-derivative news: The sequential monthly rate of increase in mortgage and credit-card deliquencies is slowing.

Too early to tell whether we’re approaching a real turn, but a step in the right direction.

NEW YORK (Reuters), Nick Zieminski: U.S. consumers fell further behind on their debts last month, and consumer bankruptcies continue to increase at a double-digit rate, but the rate of mortgage and credit card delinquencies may have peaked, a top credit bureau executive told Reuters on Thursday.


Among U.S. homeowners with mortgages, 7.01 per cent were at least 30 days late on their loans in May, an increase of 58.4 per cent from a year ago and up 1.3 per cent from the prior month, according to monthly data by Equifax Inc (EFX.N). By comparison, 4.42 per cent were delinquent in May 2008.


While the year-over-year increase is dramatic, the pace of sequential increases has slowed, said Dann Adams, president of U.S. Information Systems for Equifax, an information and data services company that provides credit data to businesses like banks, credit card issuers and retailers.


“The next three months should determine if we’ve really flattened out,” Adams said, adding that a key factor would be the depth of job losses.


The U.S. unemployment rate last month reached 9.4 per cent, the highest level since 1983, even as the pace of job losses slowed in May, hinting at stabilisation in the labour market.


Much closer scrutiny of new mortgages will help limit delinquency rates, Adams said, now that lenders have adopted stricter underwriting standards to limit their losses.


“There is not a mortgage in the U.S. being underwritten without verification of income and employment,” Adams said.




Lenders, meanwhile, continue to curtail access to credit cards by closing accounts and reducing charge limits.


The number of U.S. accounts fell to 365 million last month, compared with a peak of 440 million in June of last year. Card companies have withdrawn more than $600 billion in credit in the past year, to less than $3 trillion in May.


Companies are also imposing lower limits on balances, and are choosier about who gets credit in the first place. A credit card law that goes into effect next year may further cut the number of cards by restricting fees and imposing other regulations on issuers.


Still, bank card delinquencies — balances that were at least 60 days past due — edged up to 4.79 per cent last month. Such delinquency rates have risen steadily for four years and have almost doubled since the second quarter of 2005.


This comes as consumers are increasingly reliant on cards, since stricter underwriting standards and lower home values have shut off access to home equity loans.


“The last lifeline for many consumers is their credit card, and that lifeline is getting shorter,” Adams said.


Delinquency rates, while rising, are doing so at a slower pace. Like mortgage delinquencies, they may be close to peaking, Adams said.


“We’re hopeful we’ve seen the bottom and are setting the stage for a recovery,” he said. “You don’t see it in the numbers quite yet.”


Factors to watch include oil above $70 per barrel, which could squeeze indebted consumers, and higher interest rates, which push up the cost of mortgages, making it harder to rewrite problem loans. The 10-year Treasury note was yielding 3.85 per cent Thursday.


Meanwhile, May 2009 consumer bankruptcy filings were 34 per cent higher than the same month a year ago, and are the highest since 2005.


Chapter 7 filings, which liquidate the assets of those unable to pay their debts, jumped 43 per cent, while Chapter 13 filings, which establish a payment plan, rose 13 per cent.


(Reporting by Nick Zieminski; Editing by Matthew Lewis)

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.