Consumer Delinquencies Continue Rising as Recession Intensifies in Fourth Quarter: ABA

WASHINGTON – Job losses continued taking their toll on consumer finances during the fourth quarter of 2008 as evidenced by rising delinquencies in almost every loan category, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.  The composite ratio, which tracks eight closed-end installment loan categories, rose 32 basis points to a record 3.22 percent of accounts (seasonally adjusted).  ABA has tracked the composite ratio since the mid 1970’s.

ABA Chief Economist James Chessen said the figures are the latest sign that the U.S. economy is experiencing the worst recession since the mid 1970’s.

“The wheels just fell off the economy in the fourth quarter of 2008,” Chessen said. “The amount of job losses dealt the economy a severe shock, and that continues to be the biggest driver for delinquencies.”

The U.S. economy lost nearly three million jobs in 2008, with nearly two million of them occurring in the fourth quarter.  “As the economy continues to shed jobs, it is unlikely that delinquencies will see any improvements this year,” Chessen added.

Home equity loan delinquencies rose 40 basis points to 3.03 percent of accounts, setting a new record.   Home equity lines of credit delinquencies also reached a new record, rising 31 basis points to 1.46 percent.  Every category saw rising delinquencies except mobile home loans.  The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

“Clearly, we are seeing a rapid economic decline in all regions and in most business sectors,” Chessen said.  “It’s a steeper downslide than in previous recessions because consumers are saving more and spending less.”

Credit card delinquencies also increased from 4.20 percent to 4.52 percent but still remain near the four year average of 4.47 percent.  Chessen says the ability of card holders to adjust their monthly payments – unlike other loans with fixed payments – has helped keep credit card delinquencies relatively stable.

The fourth quarter composite ratio is made up of the following closed-end loans.  All figures are seasonally adjusted based upon the number of accounts.

• Home equity loan delinquencies increased from 2.63 percent to 3.03 percent.
• Property improvement loan delinquencies increased from 1.63 percent to 1.75 percent.
• Indirect auto loan delinquencies increased from 3.25 percent to 3.53 percent.
• Direct auto loan delinquencies increased from 1.71 percent to 2.03 percent.
• Marine loan delinquencies increased from 1.82 percent to 2.35 percent.
• RV loan delinquencies increased from 1.27 percent to 1.38 percent.
• Mobile home delinquencies decreased from 3.08 percent to 2.96 percent.
• Personal loan delinquencies increased from 2.69 percent to 2.88 percent.

Chessen advised consumers to watch for warning signs of financial problems and act quickly.  Warning signs of overextended credit include:

• Paying only the minimum payment month after month;
• Being out of cash constantly;
• Being late on important payments such as rent or mortgage;
• Taking longer and longer to pay off balances; and
• Borrowing from one lender to pay another.

For homeowners having trouble paying their mortgage, ABA strongly recommends they consult www.hopenow.com or call 1-888-995-HOPE.  HOPE NOW is a cooperative effort between counselors, investors, and lenders to help homeowners in distress.

For others who are having trouble paying down debts, ABA advises taking action — sooner rather than later — to solve debt problems with the following tips:

• Talk with creditors – the sooner you talk to them, the more options you have;
• Don’t charge more purchases until your problems are solved;
• Avoid bankruptcy – it’s a short-term solution with long-term consequences; and
• Contact Consumer Credit Counseling Services at 1-800-388-2227.

For more information on budgeting, saving and managing credit, visit the ABA Education Foundation’s Consumer Connection web page at www.aba.com.

The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation’s banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.6 trillion in assets and employ over 2 million men and women.