Delinquencies were down in closed-end loans in the second quarter, driven by a significant drop in home equity loan delinquencies and continued financial discipline by consumers, with delinquencies declining in seven of the 11 individual loan categories, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.
The composite ratio, which monitors delinquencies in eight closed-end installment loan categories, continued a three-year trend of remaining below the 15-year average of 2.27 percent, falling 17 basis points to 1.36 percent of all accounts. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
“The steady forward march of the economy has continued to strengthen consumers’ financial positions,” James Chessen, ABA’s chief economist, said in a statement. ”Consumers continue to impress with their ability to manage debt prudently and keep spending under control. The drop in gas prices from last year has provided a big boost to disposable income and has freed up money that makes debt obligations a bit easier to handle.”
Delinquencies in two of the three home-related categories declined 22 basis points to 2.9 percent and HELOC delinquencies fell 8 basis points to 1.42 percent, continuing their downward trend in the second quarter. Property improvement delinquencies rose slightly, up one basis point to 0.91 percent.
“There is a strong correlation between rising home prices and falling home-related delinquency rates,” Chessen said. “As the housing market continues to gain strength, we expect home equity loan delinquencies to continue their downward trend.”
Bank card delinquencies increased slightly in the second quarter, up three basis points to 2.52 percent of all accounts, remaining below their 15-year average of 3.74 percent and only varying 14 basis points since the fourth quarter of 2012.
“Credit card delinquencies remain really low by historical standards as consumers maintain their sharp focus on keeping debt at reasonable levels,” Chessen said.
Chessen projects delinquency levels to remain at near record lows despite challenges on the horizon.
“A strong job market and rising incomes will go a long way toward keeping delinquencies at these historically low levels,” Chessen said. “With global events creating more uncertainty about the pace of the U.S. economy, it’s even more important for consumers to maintain their disciplined approach to managing debt.”
