ABA Reports Delinquencies Improve Despite some Housing Loans

The American Bankers Associations (ABA) composite index of delinquencies in 11 loan categories fell 10 basis points in the fourth quarter of 2011 and each of the 11 loan types fell as well.  ABA was particularly pleased with bank card performance where delinquencies fell eight basis points to a rate of 3.17 percent, the lowest since 2001.  Delinquencies are defined as payments that are 30 or more days overdue.

Several housing-related categories of debt did not fare as well.  ABA does not include first mortgages in their data but they do include home equity loans, property improvement loans, home equity lines of credit (HELOCs), and mobile home loans.  While delinquencies in personal loans fell 17 basis points, direct auto loans 9, indirect auto loans 13, and marine loans 15, some loans in the housing sphere showed more modest improvement.  Home equity loans fell just 4 basis points to 4.08 percent and property improvement loans were down 3 basis points to 0.93 percent.  HELOCs performed well, dropping from a delinquency rate of 1.93 percent to 1.69 percent while mobile home delinquencies were down 32 basis points to 3.76 percent.

Overall, ABA Chief Economist James Chessen said the news was very encouraging.  "You can't get a better consumer credit report card than this," he said. "It's very rare that delinquencies improve in every single loan category. The last time that happened was in the fourth quarter of 2004."

"Even with a strong quarter, there's still room for improvement in delinquencies. Troublesome performance in housing-related loans is keeping overall delinquency rates elevated. The housing sector continues its painful adjustment, and it will take a long time before delinquency rates return to normal," he said.

But consumers have reason to feel positive. "The economic tide at the end of 2011 lifted most boats.  The deleveraging of consumer credit is paying dividends now.  Consumers are being careful about taking on new debt; they're managing the debt they do have much better and the amount of debt as a portion of income is going down."  He added, "The biggest concern I have now is retail gas prices." 

Looking forward, Chessen expects delinquency rates to improve but says they are unlikely to repeat this quarter's unusual rate of improvement. 

"The good news is that fewer people are losing their jobs and more people are becoming re-employed. Those two factors combined means more people are better positioned to meet their debt obligations," he said.