Interest Rate Roundup

Tuesday, July 07, 2009

ABA: Record loan delinquencies in Q1

The American Bankers Association just released its latest look at quarterly delinquencies for a wide variety of consumer credit products. Here's a peek at what the group's numbers showed:

* The composite index that tracks delinquencies on all products rose to 3.23% in Q1 2009. That was up ever so slightly from 3.22% a quarter earlier, and a fresh record high (The ABA's figures go back to 1974). On a dollar value basis, the delinquency rate also rose to a record 3.35% from 3.16% a quarter earlier.

* Credit card late payments rose to 4.75% from 4.52% a quarter earlier. On a dollar value basis, delinquencies jumped to a record 6.6% from 5.52%.

* DQs on closed end home equity loans rose to 3.52% from 3.03%. That's the highest on record. DQs on revolving home equity lines of credit climbed to a record 1.89% from 1.46%. Delinquencies on direct auto loans (those obtained by the consumer directly from a bank) rose to 3.01% from 2.03%, while DQs on indirect auto loans (those obtained from a dealer, but funded by a bank behind the scenes) dipped to 3.42% from 3.53%.

The credit crisis that began in the subprime mortgage sector has long since spread to the rest of the lending industry. The latest ABA figures show record delinquencies on closed-end home equity loans, record delinquencies on open-ended home equity lines of credit, and record delinquencies on credit cards (when measures in dollar volume terms). Meanwhile, delinquencies remain elevated on auto loans, personal loans, and even mobile home loans. Unless and until the job market stabilizes, we can expect to see ongoing deterioration in consumer credit quality -- and more resulting pain for the lending industry as a whole.

Looking at the bigger picture, Americans simply borrowed and spent too much during the halcyon days of the early-to-mid 2000s. They were counting on ever-rising home values to bail them out from high-risk loans. The lending industry actively egged them on, as did policymakers at the Fed, who kept interest rates too low for too long. Now, we are all dealing with the hugely negative consequences of this massive credit bubble. What a shame. We can only hope that borrowers, lenders, policymakers, and regulators behave more responsibly in the future.


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