Most 3rd-quarter loan delinquencies fall
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The highest number of consumers made prompt payments on their loans in the third quarter of 2009 than at any point in the past two years, as the recession complicated life for so many households living on the edge, according to the American Bankers Association.
Consumer delinquencies fell in seven of nine loan categories, including auto loans, boat loans, personal loans and recreational vehicle loans. However, late payments continue to increase overall in two categories -- home equity loans and mobile home loans.
"Maybe it's more wishful thinking, but my hope is consumer delinquencies are near their peak," said James Chessen, chief economist for the American Bankers Association. "It's all about jobs. The consumer delinquencies we see today are a direct result of job losses in the economy."
The rising number of consumers who are paying their loans on time could be a reflection of the healing that is slowly taking place as job losses have begun to taper off. But the lower delinquency rates also could be partly attributed to banks writing off bad loans.
"Banks are putting losses behind them, setting the stage for expanded lending to consumers as the economy recovers," Mr. Chessen said.
According to the ABA's Consumer Credit Delinquency Bulletin, auto loan delinquencies in the third quarter of 2009 fell from 2.46 percent to 2.04 percent; credit card delinquencies dropped from 5.01 percent to 4.77 percent; boat loan delinquencies fell from 2.28 percent to 2.21 percent; personal loan delinquencies declined from 3.90 percent to 3.74 percent; and RV loan delinquencies slid from 1.72 percent to 1.64 percent.
On the other hand, Americans continue to be dragged down by the weight of housing-related loans. For instance, home-equity loan delinquencies rose from 4.01 percent to a record high 4.30 percent; and mobile home loan delinquencies increased from 3.53 percent to 3.63 percent.
"It's telling that we have not seen similar improvements in the home-equity side," said Robert Dye, an economist for PNC Financial Services in Pittsburgh. "In many parts of the country home prices are still weak. In some areas home prices are still falling."
He said the nation has not yet seen the consistent improvement in residential real estate prices that must eventually occur before the delinquency rate improves in that area.
"Two key indicators are employment and home prices," Mr. Dye said. "When the unemployment rate goes down and home prices go up meaningfully, then we will see the improvement in the delinquency rate spread to all areas of consumer credit."
Consumers have undergone a gut-wrenching transition since 2007 when loan delinquencies began to rise due to the recession. Families have reduced their spending and have grown concerned about their employment status even as they watch the values of their homes decline and their balance sheets worsen.
"Essentially consumers have buckled up their belts, reconsidered the debt they've taken on and are being more conservative," said Bob Hapanowicz, president of Hapanowicz & Associates, Downtown. "Consumers don't want the amount of debt they've had in the past."
Paul Brahim, a financial adviser at BPU Investment Management, Downtown, however, has a simple explanation for why he thinks auto payment delinquencies have gone down while home equity loan delinquencies are hitting historic highs.
"People who are under water with their homes can walk away and go rent somewhere else," Mr. Brahim said. "But they need their cars to go to work."
First Published January 8, 2010 12:00 am