A survey by the Federal Reserve Bank of New York showed that total outstanding household debt, including home mortgages, rose to $12.58 trillion at the end of last year. The all-time high was about $100 billion more. This record was set in the third quarter of 2008, just before the financial crisis set off by sub-prime mortgages plunged the country into the worst economic downturn since the 1930s.
Although total household debt is getting close to its 2008 peak, the type of debt is changing. Mortgage debt has been slow to recover, while borrowing for auto loans and student loans rose $12.6 billion in January, slightly more than in December. The $8.8 billion overall gain pushed consumer credit in the areas of auto and student loans and credit cards up to $3.77 trillion, a record high for the categories.
As we near the end of the first quarter of 2017, we thought it would be of interest to our readers to take a brief look at what’s trending in debt and possible delinquencies in the most-often-mentioned categories.
According to S&P Global Ratings, as more borrowers fall behind on payments, US subprime auto lenders are losing money on car loans at the highest rate since the aftermath of the 2008 financial crisis. The rate is the worst since January 2010 and is largely driven by worsening recoveries after borrowers default, S&P said. Those losses are rising in part because when lenders repossess cars from defaulted borrowers and sell them, they are getting back less money, due to a flood of used cars that became available when manufacturers offered generous lease terms. The rise in auto lending has been driven in part by low rates and in part by the fact that auto loans are still available even to the riskiest borrowers.
A decade ago, there were less than $500 billion in student loans, but as tuition rose and growing numbers of students borrowed for college, the sum surpassed $1 trillion for the first time in March 2012 and stood at $1.31 trillion in the fourth quarter of 2016. The number of American borrowers who have student loan debt is 44.2 million. Student loan debt (10%) compared to other types of consumer debt is second only to mortgages, which make up 67 – 70%. Approximately 70% of students graduate from college with debt. In the fourth quarter of 2016, 11.2% of student loan debt was 90 or more days delinquent.
Credit Card Debt
In the fourth quarter of 2016, Americans added $60.4 billion to their credit card debt, the largest fourth-quarter debt increase since 2007. The year closed with $978.3 billion owed on credit cards. Researchers project that the total U.S. credit card balance at the end of 2017 will grow by $100 billion, pushing total debt well above the $1 trillion mark for the first time ever. Credit card delinquency rates for payments that are 90 or more days past due have been increasing since fourth quarter 2014. The rate was 1.48 percent in fourth quarter 2014 and is projected to be 1.82 percent in fourth quarter 2017. This is the highest level since fourth quarter 2011 and a 6.1 percent increase from the rate expected at the end of this year.
When it comes to overall debt levels, most comes from mortgages, which make up 70%, on average, of Americans’ debt load. Wealthier states tend to have the highest amount of debt and percentage of debt held in mortgages, but the researchers point out that Americans with higher debt may also have higher incomes and better access to credit. Despite the prospects for higher interest rates, serious mortgage delinquency rates will decline slightly in 2017, to 2.11% by the fourth quarter, according to TransUnion.
Nationally, almost 24% of nonelderly Americans have past-due medical debt, according to an Urban Institute report. Many Americans carry past-due medical debt balances. A recent Consumer Financial Protection Bureau report found that unpaid debt in collections owed to hospitals and other medical providers made up about half of all debt in collections, and that 19 percent of consumers with a credit file had some form of medical debt in collections (CFPB 2014).
Home Equity Loans
Borrowers who took out home-equity lines of credit (commonly called Helocs) when real-estate prices were surging are struggling to keep up as principal finally comes due after years of interest-only payments, The Wall Street Journal reported. Banks are potentially facing billions in losses. Homeowners who signed up for Helocs in 2004 were 30 or more days late on $1.8 billion worth of outstanding balances four months after principal payments began, according to data provided to Journal by credit-reporting firm Equifax.
Borrowers who obtain payday loans usually apply for them because they have cash flow difficulties and few, if any, lower-cost borrowing alternatives. In studying payday loans in North Dakota, the Center for Responsible Lending found that nearly half of all borrowers default on a loan within their first two years of borrowing. (The CRL used data from North Dakota because it has a database that tracks each borrower in the state.)
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