Mortgage Defaults are Holding Steady

On Tuesday, S&P Dow Jones Indices and Experian released data for the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults.

From December 2016 to January 2017, the index level for first mortgages has increased from 0.71 percent to only 0.72 percent. Second mortgages saw a similarly small increase from 0.41 percent to 0.48 percent. Likewise, mortgage delinquency has shown signs of stabilization. Delinquency rate dropped by 7.3 percent last year, but remained unchanged in the last two quarters.

Mortgage originations saw a significant increase in 2016 as well. Joe Mellman, VP and Mortgage Business Leader at TransUnion said, “Originations have continued to grow across all risk tiers, which suggests lenders may be warming up to originating mortgages to non-prime borrowers, even though that share of the market remains small at under 4 percent.”

Across the five metropolitan statistical areas (New York, Chicago, Dallas, Los Angeles, and Miami), Miami had the highest rate of defaults at 1.67 percent, up 14 basis points since December. Dallas (0.75 percent) and Los Angeles (0.80 percent) both reported eight basis points increases, and Chicago reported a five basis point increase to 1.03 percent. New York reported the smallest default rate increase of one point to 0.88 percent.

David Blitzer, S&P Dow Jones Indices committee chairman and Managing Director, said that consumer sentiment has risen in the past couple of years.

“Recent data point to consumer optimism: retail sales rose 5.5 percent in January 2017 compared to a year earlier, consumer sentiment measures rose over the last two years, and employment and labor market conditions are favorable,” he said. “Federal Reserve data on consumer credit and mortgage debt outstanding reveal that consumers are borrowing money.”

In addition to mortgage defaults, the S&P/Experian Consumer Credit Default Indices also covered bank card defaults. As of January, bank cards saw an increase in defaults, up to 3.21 percent, the highest level since July 2013. At the same time, results from the report show that mortgage delinquency has not shown significant change.

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