Consumers In Trouble

Consumers In Trouble: Loan Delinquencies Hit Record Highs In Second Quarter

By Jennifer Waters, Marketwatch | 1 October 2009

CHICAGO (MarketWatch)— The economy's chokehold tightened in the second quarter as consumers fell behind on their debt payments in record numbers, the American Banker's Association said Thursday. Delinquency rates hit record highs on home-equity loans, home-equity lines of credit and bank cards for the quarter that ended July 31, the latest numbers available. Everyone but government is deleveraging.

First it was Wall Street. Now it's households that are paying down their debts and starting to save a little [[mostly NOT through choice! : normxxx]] In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains. WSJ's David Wessel discusses.

The composite ratio, which tracks eight closed-end installment loan categories, also hit a high at 3.35% of all outstanding accounts, seasonally adjusted, compared with the first quarter's 3.23%. This is the sixth straight quarter that delinquencies have risen. The culprit is the snowballing result of the longest and deepest recession since the Great Depression, according to ABA Chief Economist James Chessen.

"The problems now are the cumulative effect of the economy and job losses," he said. "Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations". Unemployment is at 9.7% , the highest since June 1983. [[now at 9.8% and still rising— the government released September employment numbers subsequent to this being written: normxxx]]

"Six consecutive quarters of job losses have taken their toll," Chessen added. "It's stunning what's happened. There's a lot of pain out there as people try to make ends meet… The picture won't change until the labor market improves and the economy picks up steam… That's going to take time."

Credit Cards Cause Most Trouble

Credit-card debts were hardest hit. Delinquencies jumped to 5.01%, up more than one-quarter percentage point over the first quarter to an all-time high. Among the closed-end loans, home-equity loan delinquencies rose to a record 4.01% from 3.52% in the first quarter. Home-equity lines of credit, which up until the first quarter of 2008, had never reached 1% of all loans, rose 0.3 percentage point to a high of 1.92%.

Personal-loan failures were at 3.90% of all loans compared with the prior quarter's 3.47%. Consumers skipped boat and other marine-related loan payments on 2.28% of all loans compared with 2.04% the quarter before while RV loans delinquencies were up to 1.72% from 1.52%. Property improvement loans delinquencies also grew, to 1.79% of all loans from 1.46% the prior quarter.

There were some decreases in delinquency rates on auto loans. Direct auto loans, those arranged by banks, fell to 2.46% from 3.01%. Indirect loans, put in place through a third party such as an auto dealer, were at 3.26% of all loans compared with 3.42% the quarter before. And mobile-home failures were at 3.53% versus 3.7% in the first quarter.

Chessen figures that the drop in auto-loan delinquencies is tied to the 'quick' decisions that are [being] made on 'bad' loans. "There are more aggressive efforts to recover car loans," he said. "Repossession rates are fairly rapid and banks charge off the loans quickly."

Jennifer Waters is a MarketWatch reporter, based in Chicago.