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Fewer consumer loans going sour, bankers group says

April 7, 2010 |  9:51 am

In a hopeful sign for the economy, a bankers group on Wednesday reported that fewer loans to consumers were going bad in the fourth quarter, the second consecutive quarter of improvement.

Delinquencies fell in eight of 11 consumer loan categories in the final quarter of 2009, the American Bankers Assn. reported, including credit cards and loans for cars, boats and recreational vehicles.

In its quarterly Consumer Credit Delinquency Bulletin, the bankers group reported mixed results for second mortgages.

Delinquencies on home equity loans edged up to another record: 4.32% of all accounts compared to 4.30% in the third quarter of 2009.  But delinquencies on home equity lines of credit fell for the first time in six quarters to 2.04% of all accounts, compared to 2.12% in the previous quarter.  

“This first sign of improvement has been a long time coming and is finally some positive indication that the housing market is stabilizing,” the chief economist for the American Bankers Assn., James Chessen, said in a statement.

A sampling of consumer files by credit tracker Equifax indicated that the positive trend continued in the first quarter this year, said Mark Zandi, chief economist for Moody's Analytics.

The Equifax sample, taken at the end of March, showed delinquency rates falling for all household borrowings, including first mortgages and closed-end second mortgages, the home-equity loans on which the bankers said defaults were still rising late last year.

"Households are making progress repairing their tattered balance sheets," Zandi said in an e-mail to The Times. "Tighter underwriting standards, falling debt service burdens, and a more stable job market are all helping."

The slight improvement may not impress some economic skeptics who have been expecting a second downturn because of such factors as what they see as a huge "shadow inventory" of homes yet to be foreclosed upon. The eventual mass sale of these properties could drag down housing prices yet again, delivering a new hit to the economy, these skeptics say.

Another study released Wednesday, this one conducted by a USC professor for the Mortgage Bankers Assn., suggested another reason why many Americans are finding it easier to pay consumer debts: They have more money in their pockets because they moved in with family or friends to avoid having to pay rent or a mortgage.

The study by Gary Painter of USC's School of Policy, Planning and Development found that 1.2 million American households were lost from 2005 through 2008 as young adults returned to the nest instead of forming their own households and older people moved in with kin after losing their homes.

The ABA survey included loans on which at least one payment has been missed.

The group's composite ratio, which tracks eight closed-end installment loan categories, fell to 3.19% of all accounts compared to 3.23% of all accounts in the previous quarter.  That index excludes types of loans where the balance can rise as consumers borrow more, such as home-equity credit lines and credit cards.

Bank card delinquencies fell from 4.77% to 4.39% of all accounts, below the five-year average of 4.52%.

Chessen said the news is a strong indication that the economy is on an upswing.

“Clearly, consumers are shoring up their finances and banks are putting losses behind them.  Overall, there is a prudent approach to credit,” he said.

--E. Scott Reckard

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