Consumer Credit Delinquencies Up, Mortgage Delinquencies Down

CoreLogic Economic Outlook: April 2019

By Frank Nothaft Housing Affordability, Real Estate

Sound underwriting coupled with family-income and home-price growth have helped push mortgage delinquency rates down.  According to CoreLogic’s TrueStandings data, at the end of 2018 the serious delinquency rate on home mortgages was the lowest in more than 12 years. One might expect that other forms of consumer lending would also have lower default rates today.  However, the 90-day delinquency rate on consumer credit has moved up during the last two years and was almost two percentage points higher than 12 years ago.[1]

Student Loan Debt Has Grown the Most

One factor in today’s higher delinquency rates has been the growth of student loans, which tend to have high late-payment rates. The dollar amount of student loan debt has grown sixfold since 2003 to $1.5 trillion at the end of 2018. (Figure 1)  It’s share of consumer credit tripled from 12 percent to 36 percent during that time. Auto loans are the next largest slice of consumer credit, with $1.3 trillion in debt outstanding.  Auto and student loans combined represented about two-thirds of all consumer credit at year-end.

Auto and Student Delinquencies High and Rising

Student loans have had 90-day delinquency rates above 10 percent since 2013 and these are much higher than before the Great Recession. (Figure 2)  Auto loan late-payment rates have been trending up and also remain well above levels of 12 years ago. In contrast, credit card delinquency rates are below where they were in the early 2000s, and home mortgage and HELOC delinquencies continue to move lower.

Auto Loans Have Lower Credit Scores

One reason for the deterioration in auto loan performance relative to home mortgages has been the extensive volume of subprime financing.  (Figure 3)  Twenty percent of auto loan borrowers during 2018 had a credit score below 620, and nearly one-third were below 660.  Using our TrueStandings data, we found that only one percent of home mortgage borrowers had a credit score below 620 and only 8 percent were below 660.

High delinquency rates on consumer credit could slow consumption spending and effect home buying in the coming year, posing risk to economic growth, household financial health and lender portfolios.

[1] Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, February 2019, Charts 3 and 12 data.  The 90-day delinquency rate for four types of consumer credit (auto, credit card, student and other debt) was 8.0 percent in the fourth quarter of 2018, up from a post-recession low of 7.4 percent in the third quarter of 2016; twelve years earlier, the delinquency rate was 6.1 percent during the fourth quarter of 2006.

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