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Tuesday, July 9, 2013

Consumer Delinquencies Decline Significantly in the First Quarter 2013

Consumer delinquencies declined significantly in this year’s first quarter, falling in 11 out of 13 loan categories as consumers more carefully manage their finances, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.



The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 29 basis points to 1.70 percent of all accounts in the first quarter, the lowest level since December 2004 and well below the 15-year average of 2.37 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

James Chessen, ABA’s chief economist, attributed the falling delinquencies to a steady improvement in the economy and improving financial health for consumers.

“Sharply lower delinquency levels reflect improving consumer balance sheets, steady job creation and a continuing increase in household wealth,” Chessen said. “Many consumers have learned the hard lessons of recession, and have redoubled their efforts to keep debt at manageable levels.”

Chessen believes that rising wealth and improving consumer confidence have played an important role in lower delinquency rates.

“Household net worth rebounded in the first quarter, rising above its pre-recession peak for the first time in over five years,” Chessen said. “Rising home and stock prices create a wealth effect that boosts consumer confidence, which contributes to healthier finances and a greater ability to pay down debt.”

While delinquencies for home equity loans, which are closed-end loans with fixed terms and repayment schedules, fell sharply, delinquencies for home equity lines of credit moved slightly higher in the first quarter.

“An increasing number of home equity lines of credit have gone from interest only to fully amortizing,” Chessen said. “This results in a payment shock for some borrowers who must adjust to paying down the principal, along with the interest.”

Read ABA’s full release.

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