Finance Globe

U.S. financial and economic topics from several finance writers.
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Consumer Loan Delinquencies Fall Again for Fourth Quarter 2009

Despite widespread unemployment, consumers in the last half of 2009 have been working hard to pay their debts on time. According to the American Bankers Association (ABA) Consumer Credit Delinquency Bulletin, consumer loan delinquencies in the fourth quarter of 2009 fell in eight out of eleven loan categories. This was the second quarter in a row for a broad-based improvement in consumer delinquencies, which the ABA defines as late payments that are 30 days or more overdue.

ABA Chief Economist James Chessen said the news is a strong indication that the economy is on an upswing. "The fall in consumer delinquencies is a very positive and hopeful sign. Clearly, consumers are shoring up their finances and banks are putting losses behind them. Overall, there is a prudent approach to credit," he said.

Of the eleven loan categories tracked by the ABA, eight are closed-end installment loans. Closed-end loans are for a fixed amount in which the borrower continues to make regular payments during a fixed payment period until the balance is paid off, such as an auto loan or a home-equity loan.

The rate of delinquency in closed-end loans fell from 3.23% of all accounts in the third quarter to 3.19% of all accounts in the fourth quarter. Six of the eight closed-end loans decreased in the rate of delinquencies for the fourth quarter.

Marine loan delinquencies dropped the most dramatically, decreasing from 2.21% in the third quarter to 1.63% in the fourth quarter. The rate of delinquencies for direct auto loans - loans arranged directly through the lender - fell from 2.04% in the third quarter to 1.94% in the fourth quarter. Delinquencies for indirect auto loans, which are loans arranged through a dealer rather than directly through the lender such as a bank, remained unchanged from the third quarter at 3.15% of all loans.

Home-equity loans were the one weak spot in closed-end loan delinquencies. This category of loan has the highest delinquency rate of loans tracked by the ABA and hit another record as it increased to 4.32% in the fourth quarter from 4.30% in the third quarter of 2009.

The remaining three of the eleven categories tracked by the ABA are open-end loans: bank cards, home-equity lines-of-credit, and non-card revolving loans. Of these opened-end loans, non-card revolving loans were the only category to increase in the rate of delinquency, rising to 1.46% in the fourth quarter from 1.40% in the third.

Bank card delinquencies in the fourth quarter fell to 4.32% of all accounts from 4.77% in the third quarter, dropping even below the five-year average of 4.52%. Home-equity line-of-credit delinquencies also fell - for the first time in six quarters - dropping from 2.12% of all accounts in the third quarter to 2.04% of all accounts in the fourth quarter.

"This first sign of improvement has been a long time coming and is finally some positive indication that the housing market is stabilizing," Chessen said.

Chessen says that while most consumers appear to be handling their finances well, the level of consumer credit delinquencies is still heavily tied to job creation. "People are actively reducing their level of debt relative to their income and are rebuilding their savings," he said. "But it's still a very stressful time for many families and this won't disappear until more people have jobs. This will keep delinquencies elevated for the next several quarters."

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Monday, 26 February 2024

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