from the New York Fed
The Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt decreased by $34 billion (0.2%) to $14.27 trillion in second quarter of 2020. This marks the first decline since the second quarter of 2014 and is the largest decline since the second quarter of 2013.
The Report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data. This latest report reflects consumer credit data as of June 30, 2020.
Mortgage balances—the largest component of household debt—rose by $63 billion in the second quarter to $9.78 trillion. Mortgage originations, which include mortgage refinances, reached $846 billion, the highest volume seen since the refinance boom in 2013. Origination credit scores for mortgages increased notably in the second quarter of 2020.
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Reflecting the sharp decline in overall consumer spending due to the COVID-19 pandemic and related social distancing orders, credit card balances fell sharply by $76 billion in the second quarter. This was the steepest decline in card balances seen in the history of the data. Auto and student loan balances were roughly flat in the second quarter. In total, non-housing balances (including credit card, auto loan, student loan, and other debts) saw the largest drop in the history of this report, with an $86 billion decline.
Aggregate delinquency rates dropped markedly in the second quarter, reflecting increased uptake of forbearances, which were provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Note that accounts in forbearance are typically marked as current on consumer credit reports. The share of mortgages in early delinquency that transitioned ‘to current’ rose to 61.1%, while there was a decline in the share of mortgages in early delinquency whose status worsened during Q2 2020. Like mortgages, credit cards, student and auto loans also showed lower transition rates into delinquency, likely reflecting the impact of government stimulus programs and various forbearance options for troubled borrowers. Approximately 7.0% of aggregate student debt was 90+ days delinquent or in default in Q2 2020 as compared to 10.8 % in Q1 2020. The sharp decline in student debt delinquency reflects a Department of Education decision to automatically qualify all federal student loans for CARES Act forbearances and report their status as current.
“Protections afforded to American consumers through the CARES Act have prevented large-scale delinquency from appearing on credit reports and damaging future credit access” said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. “However, these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic and the subsequent economic slowdown.”
The New York Fed also issued an accompanying Liberty Street Economics blog post that examined key developments on consumer balance sheets, at a monthly frequency, in the period since the COVID-19 pandemic began.
The Report includes a one-page summary of key takeaways and their supporting data points. Overarching trends from the Report’s summary include:
Housing Debt
- Approximately 0.5% of current mortgage balances became delinquent in Q2 2020, as many borrowers enrolled in forbearance programs.
- Approximately 24,000 individuals had a new foreclosure notation added to their credit reports between April 1 and June 30. This is the lowest level seen since the beginning of the report in 1999.
- Student Debt
- Outstanding student debt stood at $1.54 trillion in the second quarter, roughly flat with the previous quarter.
- Approximately 7.0% of aggregate student debt was 90+ days delinquent or in default in Q2 2020.[2] The sharp decline in student debt delinquency reflects a Department of Education decision to report current status on loans eligible for CARES forbearances.
- Account Closings, Bankruptcy Notations and Credit Inquiries
- The number of credit inquiries within the past six months—an indicator of consumer credit demand—was at 127 million, a small decline from the previous quarter. A change in the treatment of inquiries for utility accounts may have also contributed to the decline.
- Account openings declined by 15 million accounts to 203 million, the largest drop in the history of the series. Account closings ticked up slightly, with 210 million accounts closed within the past 12 months.
Household Debt and Credit Developments as of Q2 2020
| CATEGORY | QUARTERLY CHANGE * (BILLIONS $) | ANNUAL CHANGE** (BILLIONS $) | TOTAL AS OF Q2 2020 (TRILLIONS $) |
| MORTGAGE DEBT | (+) $63 | (+) $370 | $9.78 |
| HOME EQUITY LINE OF CREDIT | (-) $11 | (-) $24 | $0.38 |
| STUDENT DEBT | (+) $2 | (+) $59 | $1.54 |
| AUTO DEBT | (-) $3 | (+) $46 | $1.34 |
| CREDIT CARD DEBT | (-) $76 | (-) $51 | $0.82 |
| OTHER | (-) $9 | (+) $6 | $0.42 |
| TOTAL DEBT | (-) $34 | (+) $406 | $14.27 |
*Change from Q1 2020 to Q2 2020
** Change from Q2 2019 to Q2 2020
Flow into Serious Delinquency (90 days or more delinquent) [2]
| CATEGORY [3] | Q1 2020 | Q2 2020 |
| MORTGAGE DEBT | 1.17% | 1.08% |
| HOME EQUITY LINE OF CREDIT | 0.77% | 0.78% |
| STUDENT LOAN DEBT [4] | 8.87% | 6.48% |
| AUTO LOAN DEBT | 2.37% | 2.26% |
| CREDIT CARD DEBT | 5.31% | 5.05% |
| OTHER | 4.74% | 4.59% |
| ALL | 2.38% | 2.05% |
About the Report
The Federal Reserve Bank of New York’s Household Debt and Credit Report provides unique data and insight into the credit conditions and activity of U.S. consumers. Based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data, the report provides a quarterly snapshot of household trends in borrowing and indebtedness, including data about mortgages, student loans, credit cards, auto loans and delinquencies. The report aims to help community groups, small businesses, state and local governments and the public to better understand, monitor and respond to trends in borrowing and indebtedness at the household level. Sections of the report are presented as interactive graphs on the New York Fed’s Household Debt and Credit Report web page and the full report is available for download.
Footnotes
1 As explained in a 2012 report, delinquency rates for student loans are likely to understate effective delinquency rates because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.
2Annualized as a four-quarter moving sum.
3 Rates represent annualized shares of balances transitioning into delinquency. Flow into serious delinquency is computed as the balances that have newly become at least 90 days late in the reference quarter divided by the balances that were current of less than 90 days past due in the previous quarter. Numbers shown in the table are four quarter moving averages of the series.
4 As explained in a previous report, delinquency rates for student loans are likely to understate effective delinquency rates because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.
Sources
https://www.newyorkfed.org/microeconomics/hhdc.html
https://www.newyorkfed.org/newsevents/news/research/2020/20200806
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