Consumer Credit Default Rates Remain Near Recent Lows in July 2012

Data through July 2012, released Tuesday by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults, showed that most loan types saw a decrease in default rates, including the composite rate down for seven consecutive months.

Four of the five loan types posted their lowest rates since the end of the 2007/2009 recession, only second mortgage increased marginally from .73% in June to .75% in July. Bank card default rate had the largest drop in July, from June’s 3.97% to 3.83%. The first mortgage default rate was constant at 1.41%, keeping the recent low it posted in June. Auto loans and the national composite experienced slight decreases in default rate from June’s 1.04% and 1.52 to July’s 1.01% and 1.51%, respectively.

“While continuing to show decreasing default rates, most of the changes in July were small compared to the magnitude of decline we had seen in the first six months of the year,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. “Consumer default rates showed small movement from June to July, in most cases the trend continued down or flat, as the consumer’s financial condition continues to improve.

“Auto loans rates hit an eight year historic low in July, at 1.01%.  Last month we saw a historic low for second mortgage default rates, but they rose by two basis points in July to 0.75%, still an impressively low number. The first mortgage default rate didn’t change, but that was after six consecutive months of decline, another statistic that bodes well for the consumer.  Bank card default rates fell the most in July, down 14 basis points to 3.83%, the lowest rate it has seen since August 2007, almost five years ago.

“Miami and New York saw their default rates drop and reach post-recession lows. Miami continues on its steady path down to 2.39% from 2.44%. After last month’s increase New York’s rate fell 15 basis points from 1.64% to 1.49%. Chicago’s rate did not change, but the 1.84% was also a recent low.  Dallas’ default rate rose from 0.87% to 0.98% and Los Angeles from 1.60% to 1.67%.

“Looking at the rate of new defaults in mortgages or auto loans, the consumers’ credit position has recovered from the financial crisis.  However, other data show that previously defaulted mortgages remain an issue and many consumers still face an overhang from old debts. Bank card trends are also favorable although the experience of the last eight years is more variable.”