January 18, 2011

Consumer Credit Defaults Fall: S&P-Experian Index

Mortgages, auto loans, credit cards all see downward trend

Consumer defaults fell in December, with auto loans showing the largest decline, according to data released Tuesday by Standard & Poor’s and Experian.

The S&P/Experian Consumer Credit Default Indices showed that, for the month of December, first and second mortgage defaults fell to 2.93% and 1.74%, respectively, from November. Auto loans dropped substantially, from 1.76%, to 1.68% for the month, and bank card default rates were down slightly to 6.73%. The composite rate for defaults fell by 3.94% from November, to a rate of 3.01%.

Compared with December of 2009, defaults for second mortgages fell heavily, dropping by 50.76%. First mortgages saw the next largest drop, down by 38.57%. Auto loans came in 36.85% lower than in December of 2009, and bank cards saw the least reduction in default, coming in 17.68% lower than they did for December a year ago.

Default rates showed variation across the country. Los Angeles and Chicago, two of the five major metropolitan statistical areas that are reported on each month, showed the greatest change, as they saw their default rates fall by about 6%, to 3.07% and 3.13%, respectively. Miami and New York were next, with lesser decline rates of 10.15% and 3.01%, respectively. Dallas’ default rate actually went up, to 2.21%.

David M. Blitzer, managing director and chairman of the index committee for S&P, said in a statement, “Default rates across the four major categories of consumer borrowing declined in December from November and from a year earlier. Nationally, consumers continue to gradually improve their financial condition.”

He added, “Separately, data from the Federal Reserve shows that bank card credit declined through November. Debt-service ratios, the proportion of disposable income that goes to paying debt, continues to decline. On a regional basis, the five cities we cover suggest that the Sunbeltcontinues to see greater than typical default rates.”

The S&P/Experian Consumer Credit Default Indices, according to the companies, track defaults in consumer balances in four categories: auto, bankcard, first mortgage lien and second mortgage lien. They are calculated based on data from Experian's consumer credit database. The database is populated with individual consumer loan and payment data submitted monthly by lenders that include leading banks and mortgage companies. The data cover about $11 trillion in outstanding loans sourced from 11,500 lenders.

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