Agencies See Measurable Improvements in Consumer Default Rates

Data through March 2012, released this week by S&P Indices and Experian showed that, with the exception of bank cards, all consumer loan types saw a decrease in default rates for the third consecutive month and in March, posted their lowest rates since the end of the recent economic crisis.

The S&P/Experian Consumer Credit Default Indices measure changes in consumer credit defaults by tracking the default experience of consumer balances in four key loan categories: first mortgage lien, second mortgage lien, auto, and bank card. The national composite reading of defaults across all four categories declined to 1.96 percent in March, down from the February rate of 2.09 percent.

The first mortgage default rate decreased from February’s 2.02 percent to 1.88 percent in March, according to the agencies’ report. Second mortgage defaults declined from 1.20 percent to 1.03 percent over the same period.

Overall, the financial health of consumers appears to be strengthening, as S&P and Experian recorded a similar decline for auto loan defaults, which slipped to 1.11 percent. Bank card was the only loan type where default rates increased in March, rising 6 basis points to 4.47 percent.

“The first quarter of 2012 was largely positive for the consumer,” said David M. Blitzer, managing director and

chairman of the index committee for S&P Indices. “Not only have we resumed the downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across most loan types.”

Blitzer notes that the first three months of 2012 show broad-based declines in default rates with first and second mortgage, auto, and composite default rates all reaching post-recession lows.

“The first mortgage default rate fell by 14 basis points in March, bringing this rate below the prior August 2011 low,” Blitzer explained. “The second mortgage rate fell by even more during the month, 17 basis points,… also at [its] lowest in the three-plus year history of these data.”

Four of the five cities tracked by the agencies’ study saw their default rates drop in March. For the third consecutive month, Chicago saw a decline. Its rate has fallen from 2.84 percent in December to 2.35 percent in March. That’s almost half a percentage point and one of the two cities to post a new consumer default low.

New York and Miami both fell for the second consecutive month. New York decreased slightly from 2.04 percent in February to 2.01 percent in March. Miami dropped almost a full percentage point, from 4.54 percent to 3.62 percent. While it still remains the highest default rate among the study’s five cities, Miami is the other city to hit a post-recession low in March.

Dallas moved down from 1.61 percent in February to 1.44 percent in March and retains the lowest rate among the five cities the agencies follow. Los Angeles was the only city where default rates marginally rose, from 1.87 percent to 1.88 percent.

The S&P/Experian Indices are calculated based on data extracted from Experian’s consumer credit database, which is populated with individual consumer loan and payment data submitted by lenders, including banks and mortgage companies, every month. Experian’s base of data contributors covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders


By: Carrie Bay