Sound underwriting coupled with family-income and home-price growth have helped push mortgage delinquency rates down. According to CoreLogic’s TrueStandings data, at the end of 2018 the serious delinquency rate on home mortgages was the lowest in more than 12 years.
One might expect that other forms of consumer lending would also have lower default rates today. However, the 90-day delinquency rate on consumer credit has moved up during the last two years and was almost two percentage points higher than 12 years ago.
One factor in today’s higher delinquency rates has been the growth of student loans, which tend to have high late-payment rates. The dollar amount of student loan debt has grown sixfold since 2003 to $1.5 trillion at the end of 2018. It’s share of consumer credit tripled from 12% to 36% during that time. Auto loans are the next largest slice of consumer credit, with $1.3 trillion in debt outstanding. Auto and student loans combined represented about two-thirds of all consumer credit at year-end.
Student loans have had 90-day delinquency rates above 10% since 2013 – these are much higher than before the Great Recession. Auto loan late-payment rates have been trending up and also remain well above levels of 12 years ago. In contrast, credit card delinquency rates are below where they were in the early 2000s, and home mortgage and HELOC delinquencies continue to move lower.
One reason for the deterioration in auto loan performance relative to home mortgages has been the extensive volume of subprime financing. Research shows that 20% of auto loan borrowers during 2018 had a credit score below 620, and nearly one-third were below 660. Using TrueStandings data, it was found that only 1% of home mortgage borrowers had a credit score below 620 and only 8% were below 660.
High delinquency rates on consumer credit could slow consumption spending and effect home buying in the coming year, posing risk to economic growth, household financial health and lender portfolios.