CONSUMER CREDIT QUALITY IMPROVING

(…) Across the economy, the portion of consumer loans that were at least 60 days past due fell to 3.59% on a seasonally adjusted basis at the end of March, from 3.73% at the end of December, according to Equifax Inc. and Moody’s Economy.com. It was the second consecutive decline in delinquencies for mortgages, home-equity loans, credit cards and other types of consumer debt. "Credit quality is improving pretty dramatically across the board," says Mark Zandi, chief economist of Moody’s Economy.com.(…)


The share of subprime loans that were at least 60 days past due or in foreclosure fell to 46.3% in March from 46.9% a month earlier, according to Fitch Ratings, which studied the value of loans packaged into securities.

The decline is effectively a rounding error and pales in comparison to the steady increase in delinquencies from their low of 6.2% in 2006. But subprime borrowers were the first to buckle under the weight of their debt—triggering what quickly became a global financial crisis—and an improvement in the sector could be seen as a notable marker in the recovery.(…)

Some analysts say it is too early to call a turn in the subprime market, noting the portion of troubled loans tends to fall in March and April as borrowers receive tax refunds. (…)

There is still plenty of new pain in the mortgage sector. Some 1.14 million loans that started the year current were at least 30 days past due in February, according to LPS, as delinquency rates continued to climb for mortgages made to borrowers with good credit. "You still have seven million loans in some form of delinquency, many of which are not subprime," said Walt Schmidt, mortgage strategist at FTN Financial. More than 3.6 million homes will be lost from 2010 to 2012 because borrowers can’t make their loan payments, according to Moody’s Economy.com.

While troubled subprime loans played a key role in the credit crisis, the sector’s importance to the $10.8 trillion U.S. mortgage market has been waning.

Just $422 billion of the $1.3 trillion in subprime loans packaged into securities from 2004 to 2007 were still outstanding as of March, according to mortgage-bond trader Amherst Securities Group LP. Refinancings reduced the amount outstanding by $670 billion, according to Amherst, while $250 billion in mortgages were liquidated. The issuance of bonds backed by new subprime loans ground to a halt in 2007.

Full WSJ article

 

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