Consumer Credit Default Rates Paint Mixed Picture

Mortgage default rates declined and outstanding mortgage balances were well below their 2008 peak in March 2016, according to the March 2016 S&P/Experian Consumer Credit Default Indices (SPICE Indices) released on Tuesday.

The composite default index, which consists of the first and second mortgage default rates, the auto loan default rate, and the bank card default rate, dropped by four basis points from February to March (0.97 percent to 0.93 percent) and by 12 basis points over-the-year in March.

The first mortgage default rate declined by seven basis points over-the-month and by 15 basis points over-the-year in March down to 0.77 percent. The second mortgage default rate of 0.59 percent in March represented a decline of one basis point over-the-month and an increase of nine basis points over-the-year.

The auto loan default rate slightly declined both over-the-month and over-the-year down to 1.02 percent. The huge increase was seen in the bank card default rate, which was down by seven basis points over-the-year but up by 36 basis points over-the-month to 2.92 percent.

S and P graph“The continuing low rates of consumer credit defaults in mortgages, auto, and bank card loans are positive signs for the economy,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Large mortgage debts followed by rapidly rising defaults in all kinds of consumer credit were key causes of the financial crisis. Conditions today are much improved; not only are defaults down, but outstanding mortgage balances were about 12 percent below the peak seen in the first quarter of 2008. Debt service ratios are close to the record lows set in the last two years as well. This all suggests that consumer spending should continue to support modest economic growth.”

The increasing bank card default rate and the declining mortgage rate tell different stories about consumers’ borrowing patterns, according to Blitzer. For starters, the bank card default rate has been both greater and more volatile than mortgage default rates.

“While bank card balances and defaults saw increases, consumer prices were flat, indicating that the growth in balances reflects increased spending,” Blitzer said. “Mortgage balances barely grew even though home prices, as measured by the S&P/CaseShiller Home Price Index, are rising 5 to 6 percent annually. The substantial majority of home sales are of existing homes, which means mortgages are being paid off at the same time new mortgages are being written.”

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