Consumer credit default rates retreat further in April 2012

On May 15th, S&P Indices and Experian released April 2012 data for the S&P/Experian Consumer Credit Default Indices, which measure consumer credit default rates. April data showed a decline in the composite index, led by a 12 basis point drop in first mortgage default rates. While having a much smaller weight in the composite, second mortgage default rates fell by almost as much during the month, 10 basis points. The national composite declined to 1.86% in April from March’s 1.96% rate, the first mortgage default rate decreased from March’s 1.88% to April’s 1.76% and the second mortgage rates declined from 1.03% in March to 0.93% in April.

Mimicking March’s trend, with April’s data first and second mortgage, auto and composite default rates all reached post-recession lows. Four of the five cities we cover saw their default rates drop, with all four at post-recession lows.

As seen in the graph below, consumer default rates are close to or below their pre-crisis rates, with the first mortgage and composite rates around those last witnessed in the summer of 2007, and the second mortgage rates back to the summer of 2005 levels. Good news for the consumer and the housing market.

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

For the complete release click here: S&P/Experian Consumer Credit Default Indice, May 2012 release

The posts on this blog are opinions, not advice.
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  1. Jacob Zunet says:

    These are really good news. Decline itself is not high, but the long term trend is positive. Hopefully, there will not be any new spur in defaults in the next few months. Recently I have read the article called Why Canada Shouldn’t be Afraid of Subprime Crisis. Its author argues that Canada was protected by its lending policies. I am curious, how exactly have changed banks in the US their own policies. Portrayal of the trends could make very nice graphic.

  2. Anthony says:

    How come the default rate on second mortgages is not higher than first? I was under the impression that one would try to keep their first mortgage current over their second (based on lien position).

    • Maureen Maitland says:

      Hi Anthony.

      There are a few things that could explain this.

      1. First, the housing crisis was lead by defaults on second mortgages, particularly in the 2007/08 time period (see graph in our writeup) when the default rates on second mortgages were higher. It appears that banks reacted quickly to tighten lending standards on such mortgages. We have actually seen a continuous decline in the number of second mortgages since the onset of the crisis

      2. Additionally, there is new regulatory guidance that requires banks holding second mortgages to conduct due diligence to ensure that the first mortgage is not distressed although the second may show no distress; hence the regulators seem more concerned consumers may default on the first mortgage prior to the second.
      3. The credit quality of the mortgagee is not accounted for in the index itself. In many cases a second mortgage loan was used as a piggy-back loan on top of a conforming first mortgage, which biased the pool of consumers with seconds to a higher credit quality. Also please note that the second mortgage index does not include revolving terrms, where consumers were extracting equity to compliment/replace income.

      Hope this helps clear up some of your concerns.

      Thanks, Maureen

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