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Credit Card Applications » News » Products » Dropping Default Data May Mean Decreasing Debt

Dropping Default Data May Mean Decreasing Debt

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Numbers released this week show that loans of all types, with the exception of credit cards, saw decreased default rates for the third month in a row.

David Blitzer, Managing Director and Chairmanof the Index Committee for S&P Indices, says “the first quarter of 2012 was largely positive for the consumer. Not only have we resumed the downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across most loan types. The first three months of 2012 show broad based declines in default rates with first and second mortgage, auto and composite default rates all reaching post-recession lows.”

The S&P/Experian Consumer Credit Default Indices were developed jointly by S&P Indices and consumer credit bureau Experian and are published once a month. They are designed to track consumer defaults in four types of loan categories: auto loans, bank cards (or credit cards), first mortgages and second mortgages. The numbers are drawn from Experian`s consumer credit database and represent about $11 trillion in outstanding debt, owed to over 11,000 lenders across the country.

Four Different Debts

The following chart shows the March 2012 results of the S&P/Experian Credit Default Indices:

S&P/Experian Consumer Credit Default Indices
National Indices
Index March 2012 Index Level February 2012 Index Level March 2011 Index Level
Composite
1.96
2.09
2.43
First Mortgage
1.88
2.02
2.33
Second Mortgage
1.03
1.20
1.42
Bank Card
4.47
4.41
5.59
Auto Loans
1.11
1.22
1.47
Source: S&P/Experian Consumer Credit Default Indices
Data through March 2012

As the table indicates, the national composite default rate went from 2.09 percent to 1.96 percent from February to March, while the auto loan default rate dipped to 1.11 in March compared to 1.22 percent in February.

The first mortgage rate was 2.02 percent in February and 1.88 percent in March, and the second mortgage rate dropped from 1.20 percent to 1.03 percent during the same time period. Even the credit card default rate, which rose from 4.41 to 4.47 percent, was lower than it was at the same time last year, when it sat at 5.59 percent.

Credit-Land.com Analysis

For a better appreciation of the rate at which credit card debt is being paid off by consumers, look at the composite default rate, which decreased from 2.09 in February to 1.96 percent in March. Consumers pay some debts faster than others, and the credit card delinquency rate may still remain high because with the unemployment rate still at 8 percent, people are still having trouble paying their credit cards and may pay them off more slowly than their mortgages.

Michael Germanovsky, editor-in-chief at Credit-Land.com offers his take: “I look at it this way – low income folks use credit cards to pay for necessities. Meanwhile, they are scared to lose the roof over their heads, and the government is not helping them. Out of 4 million homeowners who were supposed to be helped under the Home Affordable Modification Program (HAMP), only 521,630 loans have been permanently modified to stop foreclosure. Risking a bad credit report over losing your house may seem a no-brainer for underpaid or unemployed people.”

Four Different Cities

In addition to tracking these four types of debt, the S&P/Experian Consumer Credit Default Indices keep statistics on the default rates in four major metropolitan areas: New York City, Chicago, Dallas, Los Angeles, and Miami. This table shows what happened to the default rates in these cities over the past year, and from February to March.

Metropolitan
Statistical Area
March 2012 Index Level February 2012 Index Level March 2011 Index Level
New York
2.01
2.04
2.26
Chicago
2.35
2.71
2.63
Dallas
1.44
1.61
1.65
Los Angeles
1.88
1.87
2.73
Miami
3.62
4.54
5.33
Source: S&P/Experian Consumer Credit Default Indices
Data through March 2012

All of the cities except for Los Angeles posted a decline in default rates from February 2012 to March 2012, with Chicago seeing the biggest drop. At nearly half a percentage point down, Chicago`s rate fell for the third consecutive month and is now at 2.35, compared with 2.71 in February. Even Los Angeles only saw a very small rise in numbers, from 1.87 to 1.88, still leaving it with the lowest rate of the four cities.

Choosing Which Check to Write

As we reported last month, when cash-strapped consumers have to choose which loans to default on, they prioritize their auto loans first, their credit cards second, and their mortgages last. This represents a shift in priorities, since historically people have prioritized paying their mortgages first. A dip in the numbers of people defaulting on any of these loans is good news for our still-shaky economy.

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