Debt, Delinquencies Down, But Foreclosures Up
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- Kara Johnson | August 19, 2010
U.S. consumer debt, including mortgages and home equity loans, declined again in the second quarter of the year, as declines in home values and high unemployment continued to put the squeeze on household budgets.
Total consumer indebtedness fell by $178 billion, or 1.5 percent, to $11.7 trillion as of the end of June, marking six consecutive quarterly declines in household debt, according to figures released this week by the Federal Reserve Bank of New York. Both mortgage and non-mortgage debt declined at the same rate, although mortgage and home equity debt make up about 80 percent of the total.
New mortgage delinquencies down
New mortgage delinquencies also fell, continuing a pattern begun last year, while fewer early delinquencies worsened into serious delinquencies overdue by 90 days or more. About 2 percent of all mortgages became 30-60 days delinquent in the second quarter of the year, down from about 3 percent in late 2008.
Transitions from early to serious delinquencies showed a significant improvement, declining from 39 percent to 33 percent from the first to the second quarter, the lowest rate of deterioration since the second quarter of 2008.
“Cure” rates, the percentage of past-due loans becoming current, increased to 30 percent for the quarter. However, despite the positive trends, the NY Fed said both transitions and cures remain at “very unfavorable levels by pre-crisis standards.”
Initial foreclosure actions up
One negative trend was in the rate of new foreclosure actions, with the NY Fed reporting an 8.7 percent increase in new foreclosures from the first to the second quarter of the year, with nearly half a million borrowers having a foreclosure notation added to their credit report. New bankruptcies also increased by 30 percent during the quarter, due in large part to seasonal factors but still well in excess of the 20 percent increase between the first and second quarters that has been typical in recent years.
The number of open credit accounts also continued to decline, although slower than in previous quarters. About 270 million credit accounts were closed during the second quarter, compared to about 160 new accounts that were opened.
Credit cards, which accounted for most of the shrinkage in accounts over the past two years, declined by only 4 million, to 361 million from 365 million, but remained about 23 percent below their peak of two years ago.
Total delinquencies down for first time in four years
Total household delinquency rates fell for the first time since early 2006, with 11.4 percent of outstanding debt in some stage of delinquency, compared to 11.9 percent at the end of March. At the same time, “seriously delinquent” debt has been trending upward, and is 3.1 percent higher than one year ago, with $986 billion in debt listed as 90 days or more past due.
It’s not clear how much of the reduction in household debt is due to debt being wiped out by bankruptcies, foreclosures or similar manners, as that data was not included in the Fed report. However, given the rising numbers of completed foreclosures being reported by such sources as RealtyTrac and others, it appears that it is a major factor, as opposed to consumers paying down debt and taking out fewer loans to begin with.
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