It's not just mortgages lenders should be worried about. Consumers are also falling behind on car loans and credit card bills, according to TransUnion, one of three U.S. credit reporting agencies.
The percentage of vehicle loans 60 days or more past due rose 8.9 percent in the fourth quarter of 2008, with the numbers increasing sharply at the end of the year. At the same time, consumers who were 90 days or more behind in their credit card payments rose 11 percent in the same period, the company reported.
Since the current recession officially began in December 2007, delinquencies on auto loans have surged 25 percent, compared with a 10 percent increase in the 2001 recession. TransUnion said it expects that rate will increase as much as 16 percent before leveling off.
TransUnion says car owners are beginning to face the same problem as many homeowners who took out subprime mortgages with little or no money down — they now owe more than their car is worth.
Meanwhile, the average credit card debt, defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower, inched upward nationally 0.33 percent to $5,729 from the previous quarter's $5,710, and 1.96 percent compared to the fourth quarter of 2007.
The highest state average bankcard debt was in Alaska, at $7,466, followed by Nevada at $6,638 and Tennessee at $6,560. The lowest average bankcard debt was found in Iowa, with $4,267, followed by North Dakota, at $4,414, and West Virginia, with $4,555 in average debt.
Incidence of delinquency was highest in Nevada, followed closely by Florida and Arizona, three states where home foreclosures have also occurred at very high rates. The lowest bank card delinquency incidence rates were found in Alaska, North Dakota and Vermont.
However, TransUnion says the numbers are not nearly as ominous as they sound, noting that, while credit card delinquencies increased from the third quarter of 2008 to the fourth quarter, they actually decreased 11 percent when compared to the fourth quarter of 2007.
“With increased unemployment rates, lower consumer confidence and less per capita disposable income, one might expect a much larger spike in card delinquency--clearly, consumers are reaching the limits of their liquidity,” said Ezra Becker, director of consulting and strategy in TransUnion's financial services group.
“The fact that we have not seen such a spike is evidence of two effects: the first is that the aggressive measures financial institutions have taken to mitigate risk in their card portfolios are bearing fruit. The second is that consumers, who have lost a great deal of liquidity with the closing of home equity lines of credit and reduced card credit limits, have become more conscientious in protecting those credit instruments still available to them and are making every effort to pay their credit card bills on time.”
Even so, the worsening economic environment prompted TransUnion to revise its long term forecasts for credit card delinquency rates. TransUnion's forecasting models for the national 90-day delinquency rate predict that credit card delinquencies will continue to rise in 2009, potentially moving near 1.8 percent by year end.
If the administration's bailout package gains sufficient traction, the credit card delinquency rate could peak in early 2010 and begin to move downward as the unemployment rate begins to fall and the drop in disposable income levels off, the company said.
Copyright 2009 consumeraffairs.com
