Residential Delinquencies Drop; Consumer Credit Rises

The national delinquency rate for residential mortgages continued to fall in May, marking the largest year-to-date drop since 2002. And consumer credit bounced upward in May, rising 8.3 percent compared with the same month in 2012, the most in about a year.

Lender Processing Services released its latest Mortgage Monitor on Monday, which found that the national delinquency rate for residential mortgages continued to fall in May, marking the largest year-to-date drop since 2002. In fact, delinquencies are down more than 15 percent since the end of December 2012, coming in at 6.08 percent for May 2013.

Delinquencies are still historically high, at about 1.4 times what they were (on average) during the decade from 1995 to 2005, according to LPS applied analytics senior vice president Herb Blecher. But the rate has been dropping since it peaked in early 2010, mainly because fewer problem loans are coming into the system, while existing inventories are working their way through. New problem loan rates are now at just 0.73 percent, which is roughly on par with the annual averages during 2005 and 2006, and very close to the 0.55 percent average during 2000 to 2004.

The company posits that negative equity is still be one of the strongest drivers of new problem loans, and — primarily buoyed by home price increases nationwide — that situation also continues to improve. The number of underwater loans has declined to 7.3 million loans as of the end of the first quarter of 2013, according to LPS. That accounts for less than 15 percent of all currently active loans and represents a nearly 50 percent year-over-year decline.

LPS defines delinquency as more than a month past due, but not actually in foreclosure. The states with the highest rates of non-current loans (both delinquent and in foreclosure) are Florida, New Jersey, Mississippi, Nevada, and New York. The Dakotas, along with Montana, Arkansas, and Wyoming, have the lowest rates of non-current residential loans.

Consumer Credit Unexpectedly Rises

The Federal Reserve reported on Monday that consumer credit bounced upward in May, rising 8.3 percent compared with the same month in 2012, the most in about a year. Revolving credit – credit cards, mostly – was up 9.3 percent year-over-year, and non-revolving credit gained 7.9 percent on an annual basis.

Total outstanding consumer credit as of the first quarter of 2013 is $2.808 trillion. That’s the highest quarterly total since before the recession. At the end of 2009, U.S. consumer credit had dropped to a low of $2.42 trillion.

Banks still hold the majority of consumer loans, about $1.211 trillion in May, with non-bank finance companies holding roughly half that, at $675 billion. The federal government in our time is also a major creditor. Currently Uncle Sam holds about $566 billion in consumer debt, much of it student loans. As recently as 2008, the government only held a little more than $100 billion.

Wall Street had another up day on Monday, with the Dow Jones Industrial Average gaining 88.85 points, or 0.59 percent. The S&P 500 was up 0.53 percent and the Nasdaq advanced 0.16 percent.