Default Rates Easing, Except on Credit Cards

(…) An index of new defaults, the Standard & Poor’s/Experian Consumer Credit Default Indices, showed this week that in the three months through April the default rate on credit card loans had climbed to 9.14 percent, the highest since the index began to be calculated in 2004.

“Consumer defaults continue to moderate in the key big-ticket items of first and second mortgages and auto loans,” said David M. Blitzer, a managing director of S.& P. “In these areas, defaults bottomed out around the same time as the stock market in the first half of 2009. Bank cards, on the other hand, continue to worsen and are at levels not seen in the history of these indices.” (…)

For car loans, the annual rate of initial defaults peaked in February 2009 at 2.75 percent, and has since fallen to 1.94 percent, the lowest since December 2007.

The default rate on first mortgage loans peaked in April 2009 at 5.67 percent, and was at 3.71 percent, nearly two full percentage points lower, in this week’s report.

Defaults on second-mortgage loans, which have lower priority for repayment, traditionally were higher than on first-mortgage loans, but the recent rate has been lower. By S.& P./Experian’s count, that rate peaked at 4.66 percent in March 2009 and has since fallen to 2.49 percent, the lowest since May 2007. (…)

Mr. Blitzer pointed to the rising rate of credit card defaults as a reason to worry about the economy. “With attention focused on consumer spending and little hope for a fast rebound in housing,” he said, “the bank card series may raise concerns for many consumer-related businesses as well as for consumer-oriented lending institutions.”

It is possible, however, that the delayed rise in the credit card default rate partly reflects the decision by those compiling the indexes to wait longer to consider an account in default. There have been reports from some banks that credit card delinquency rates have begun to decline.

Full NYT article


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