After four consecutive increases, first mortgage default rates fall in January 2012

On February 21st, S&P Indices and Experian released January data for the S&P/Experian Consumer Credit Default Indices, which measure consumer credit default rates. The data showed a decline in the composite index, led by an 11 basis point drop in first mortgage default rates. Second mortgage and bank card default rates also moved down; while auto loans default rates were unchanged.

As seen in the graph below, the weight of first mortgage default rates leads the trend in the national. First mortgage default rates rose in each of September through December 2011, and fell in January 2012, which was the same pattern for the composite.

S&P/Experian Credit Default Indices. Sources: S&P Indices and Experian

In January, first mortgage default rates fell to 2.08%, reversing the increases seen in November and December. First mortgage default rates first started to increase steadily in the middle of 2006, when the housing bubble burst. They reached their maximum rate of 5.67% in May 2009, and have since been in a general pattern of decline, reaching a recent low of 1.92% in August. Second mortgages followed the same general trend, with a 4.66% high in March 2009 and a recent low of 1.25% in July 2011.

Even off its low, January’s first mortgage default rate is close to 1/3rd of the May 2009 high, a good sign for the consumer balance sheet. Prior to the September-December 2011 increases, however, first mortgage rates had not seen four consecutive monthly increases since late 2008/early 2009. So the next few months will be important in understanding whether consumer default rates are resuming the two-year downward trend that was interrupted in the middle of 2011, or if there is a new reversal of trend.

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