We’re approaching the end of the year, and the big topic in credit trends seems to be delinquency rates. These rates, which measure loan nonpayment levels, were increasing in 2009 and had not peaked, while today they are no longer at historic highs and are declining. Even mortgage delinquencies are declining. Lenders today are more concerned about portfolio growth initiatives than where and how to tighten risk controls.
Oct 2009 Oct 2010
Mortgage 7.76% 7.17% [8% decline]
HELOC 3.39% 3.05% [10% decline]
Card 4.58% 3.50% [24% decline]
Auto 1.21% 0.92% [24% decline]However, it is still tough out there, given the last few years of recession and the nascent recovery. Mortgage and HELOC delinquencies are still at levels never seen before. Personal bankruptcy filings for the first ten months of 2010 exceeded 1.3 million, more than 10 percent higher than a year ago, when they were almost 1.2 million.
Total consumer debt began to decline during 2009 and continues to decline in 2010. Even though delinquencies are declining, consumers can’t handle debt obligation or are reluctant to take on more debt. Up until now, lenders have been extremely cautious in granting new debt.
Total Consumer Debt ($Trillions)
Oct 2007 Oct 2008 Oct 2009 Oct 2010
$11.1 $11.5 $11.0 $10.6
However, this is beginning to change. For some loan types, the declines are slowing or even ending—some portfolios are poised for growth. Auto loans are one example. With auto loan originations up and nonpayment rates down, auto loan balances are on the verge of positive year-over-year growth—for the first time since 2008.
Credit cards also appear to be ending a period of decline. Credit card debt has declined precipitously—down 6.7 percent in 2009 and 9.9 percent in 2010. However, nonpayment rates declined as fast as rates increased, and card lenders recently began to increase originations across the risk spectrum. I predict the sustained decline in credit card debt will slow and begin to reverse next year, especially with originations returning.
Lower delinquencies are a bright spot for the end of 2010, but check back next month for more of my predictions for 2011. What are the credit issues you’re concerned about in the New Year?
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