The Quarterly Report on Household Debt and Credit, a third quarter report from the Federal Reserve Bank of New York’s Center for Microeconomic Data, frames a disconcerting portrait of Americans who are seriously delinquent. The study was released November 14, citing increases in mortgage, student, auto and credit card debt (increasing by 0.6%, 1.0%, 1.9% and 3.1% respectively) and a modest decline in home equity lines of credit (HELOC) balances (decreasing by 0.9%).
In addition, media giants including the Washington Post, Houston Chronicle, Chicago Tribune and Los Angeles Times reported that “6.3 million Americans are 90 days late on their auto loan payments” after viewing the same data. They also said the delinquency rate on vehicles has increased steadily since 2011 and that many consumers are in danger of losing their vehicles to repossession. Accounts that are 90 days late are considered “seriously delinquent” while those reaching 120 days are categorized as “severely delinquent.”
Concern About Seriously Delinquent Auto Loans
This news has some experts comparing the trend in seriously delinquent auto loans to the home mortgage crisis fueling the Great Recession and financial crisis of 2008-2009 that resulted from lenders lowering standards to issue more loans.
Statistics also indicate that consumers with seriously delinquent auto loans generally have credit scores under 620 and consequently, pay interest rates of 15 to 20 percent.
A sort of the Fed’s data aggregated by the pros and cons of the study follows.
Reasons for Concerns
- The $13 trillion of household debt is $280 billion above the 2008 Q3 maximum.
- There was a deterioration in the transition rate of mortgages in early delinquency with 16.2 percent transitioning to 90+ days delinquent (versus 12.8 percent the previous quarter).
- Outstanding student loan debt grew and remained at $1.36 trillion as of September 30, 2017.
- Auto loan balances increased by $23 billion, continuing a six-year trend with delinquencies of 90-plus days increasing to 4 percent.
- Credit card balances increased by $24 billion with 4.6 percent delinquent at 90-plus days.
Reasons for Optimism
Mortgage delinquencies continued to improve, with 1.4 percent of mortgage balances 90 or more days delinquent in the third quarter of 2017.- Delinquency transition rates for current mortgage balances were unchanged, with 1.0 percent of current balances transitioning to delinquency.
- About 70,000 individuals had a new foreclosure notation added to their credit reports between July 1 and September 30, a new historical low.
- 11.2 percent of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q3, unchanged since the previous quarter.
Mortgage delinquencies continued to improve, with 1.4 percent of mortgage balances 90 or more days delinquent in the third quarter of 2017.The report also disclosed that “the number of credit inquiries within the past six months – an indicator of consumer credit demand – increased in the third quarter.”
There were other reasons for optimism regarding credit scores.
“The distribution of the credit scores of newly originating borrowers shifted up slightly for both auto loans and mortgages. For auto loan originators, the median score increased to 705, as the higher level of auto loan originations in the third quarter was mainly due to growth in originations to prime borrowers; origination volume to borrowers with credit scores under 660 declined. The median credit score to individuals originating new mortgages ticked up to 760, from 754.”
Finally, the report indicated that over 12 percent of consumer accounts have been subjected to third-party debt collections within the last 12 months with an average of approximately $1,340 per account. It also indicated that most collection actions are “associated with medical bills and utility bills.”
Optio Solutions stands ready to assist companies having delinquent consumer accounts using individualized strategies and contingency collection agreements.
Individualized strategies entail a detailed study of consumer accounts and trends, economic conditions and predictive analytics by Optio’s operations managers. Such strategies are integrated with corporate compliance programs, certification, and the latest data security and technology to deliver consistent brand protection and measurable results.
Contingency collections don’t require the advanced payment of fees or bear hidden costs. Companies only pay if Optio makes good on its promise to collect — it’s really that simple. Furthermore, contingency collections are very cost effective for accounts that are 30 days past due or older.
Contact Optio today to see how an individualized debt collection strategy can benefit your organization.
