3Q2012 Household Debt Continues to Contract

Econintersect analyzes consumer credit monthly from the Federal Reserve releases.  The New York Fed does a quarterly review which is the basis of this post – and it too uses resources outside of the Federal Reserve system data to provide this analysis.  There analysis differs from Econintersect‘s in that it includes mortgages – and for this reason is called QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT.

Note that although the outstanding value of mortgages is declining, the cumulative of the other parts of household debt is growing modestly.

Synopsis of Household Debt and Credit Developments in 2012 Q31 from the NY Fed:

Aggregate consumer debt fell again in the third quarter, by $74 billion, continuing the nearly four-year downward trend in household debt. As of September 30, 2012, total consumer indebtedness was $11.31 trillion, 0.7% lower than its level in the second quarter of 2012 and down $1.37 trillion from the 2008Q3 peak.

Mortgages, the largest component of household debt, continue to drive the decline in overall indebtedness. Mortgage balances shown on consumer credit reports continued to drop, and now stand at $8.03 trillion, a 1.5% decrease from the level in 2012Q2. Home equity lines of credit (HELOC) balances dropped by $16 billion (2.7%). Non-mortgage household debt balances jumped by 2.3% in the third quarter to $2.7 trillion, boosted by increases of $18 billion in auto loans, $42 billion in student loans, and $2 billion in credit card balances.

Overall, delinquency rates improved slightly in 2012Q3. As of September 30, 8.9% of outstanding debt was in some stage of delinquency, compared with 9.0% in 2012Q2. About $1.01 trillion of debt is delinquent, with $740 billion seriously delinquent (at least 90 days late or “severely derogatory”).

Delinquency transition rates for current mortgage accounts were roughly unchanged, with 1.9% of current mortgage balances transitioning into delinquency. However, the rate of transition from early (30-60 days) into serious (90 days or more) delinquency increased to 26.3%, up by 2.8 percentage points from 2012Q2. Furthermore, the cure rate – the share of balances that transitioned from 30-60 days delinquent to current – saw a second consecutive decline to 26.4%. About 354,000 consumers had a bankruptcy notation added to their credit reports in 2012Q3, a 16.3% drop from the same quarter last year, and the seventh consecutive drop in bankruptcies on a year-over-year basis.

Mortgages

• Originations, which we measure as appearances of new mortgage balances on consumer credit reports, rose to $521 billion.
• About 242,000 individuals had a new foreclosure notation added to their credit reports between June 30 and September 30, a slowdown of 5.5%, continuing the downward trend as foreclosure starts return to their pre-crisis levels.
• Mortgage delinquency rates continued to improve, with 5.9% of mortgage balances 90+ days delinquent, compared to 6.3% in 2012Q2.
• The 90+ day delinquency rate of Home Equity Lines of Credit held steady at 4.9% as of September 30, 2012.

Student Loans

• Outstanding student loan balances increased to $956 billion as of September 30, 2012, an increase of $42 billion from the previous quarter. However, of the $42 billion, $23 billion is new debt while the remaining $19 billion is attributed to previously defaulted student loans that have been newly updated on credit reports this quarter
• This increase has boosted the delinquency rate for student loans balances. The percent of student loan balances 90 or more days delinquent stands at 11.0%

Credit Cards and Consumer Credit Demand

• Aggregate credit card limits remained flat (down $9 billion or 0.3%) during the quarter.
• There are 382 million open credit card accounts, down slightly from 2012Q2.
• Balances on credit cards accounts increased by approximately $2 billion.
• The number of credit inquiries within six months – an indicator of consumer credit demand – decreased for the third consecutive quarter. There were 167 million inquiries, a slight decrease from the 168 million seen in the second quarter.

Auto Loans

• Auto loan originations rose for the third consecutive quarter, to $85.8 billion, an increase of 4.4%.
• The percentage of auto loan debt that is 90 or more days delinquent held roughly steady, at 4.2%.

The full report is in pdf format and includes a lot of pretty graphs – click here to read the full report.