Despite continued high unemployment as the economy slowly recovers from the Great Recession, one indicator points to potential improvement: Borrowers are paying back their debts in a more timely manner.
According to Equifax, of Atlanta, auto-loan delinquency rates for payments at least 60 days overdue fell 35 percent in July when compared with the same month in 2011. Bank-card delinquencies dropped 21 percent over the same period. The bureau reported the July figures as part of its monthly National Consumer Credit Trends report. First-mortgage delinquency rates of 30 days or more fell 15 percent, and home-equity revolving lines-of-credit delinquency rates fell 7 percent, the company added.
According to Chicago-based TransUnion, the national share of auto-loan borrowers 60 or more days past due hit its lowest level in the second quarter since the company began tracking the data in 1999, falling to 0.33 percent from 0.36 percent in the first quarter. The decline is not isolated to this year, having fallen 25 percent in the 12 months starting July 1, 2011. Similarly, the mortgage delinquency rate of borrowers 60 days past due dropped for the second consecutive quarter, declining to 5.49 percent in the second quarter, a drop of 9 percent since January 2012.
The local numbers follow the same trend, although they are not as dramatic. According to TransUnion, the Ocean State had a mortgage delinquency rate as of June of 5.58 percent, slightly higher than the national average, and a 90-day delinquency rate for bank cards of 0.66 percent, again slightly higher than the national average. The state’s auto loan delinquency rate for payments at least 60 days overdue is identical to the national average at 0.33 percent, less than half the 0.74 percent rate in June 2010, the second-highest in the nation at the time.
One reason for the improved loan performance is the change in lending standards since before the recession. “If you look back to before the economic crisis, banks were taking customers with credit scores of 525, which is easily sub-prime. Most banks won’t touch anyone under 640 right now,” said Raymond J. Larson, owner of Charles Street Motors, North Providence. He has been in the business for almost 30 years and was one of the first automobile dealers in the state to offer “guaranteed financing.”
“Lending institutions are thriving a little, but it is more difficult to put a deal together than before the recession. They are looking for higher payments or a larger down payment to get the customer more committed.”