Consumer loan delinquencies decline for third consecutive quarter

During the first quarter of 2010, consumer loan delinquencies showed improvement for the third quarter in a row, a sign of continued modest improvement in the U.S. economy, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.

Released Wednesday, the delinquency bulletin tracks delinquencies in eight closed-end installment loan categories. The composite ratio fell 21 basis points from 3.19% in the fourth quarter of 2009 to 2.98% of all accounts in the first quarter of this year.

The ABA report defines a delinquency as a late payment that is 30 days or more overdue. A closed-end loan involves a fixed amount of money with a fixed repayment period and regularly scheduled payments.

Bank card delinquencies fell more than half of one percent to 3.88% of all accounts which is below the 15-year average  of 3.93% of all accounts. This is the first time since the second quarter of 2002 that bank card delinquencies have fallen below 4% of all accounts.

ABA Chief Economist James Chessen said the improvements reflect concerted efforts by consumers to shore up their finances. “It’s clear that consumer balance sheets are improving. People are borrowing less, saving more and building wealth. These are all positive signs, ” he said.

Chessen added that across-the-board improvements in housing-related loan delinquencies indicate stability is returning to the housing market. “This is the first inkling that stability is taking hold in the housing market, but the pace of recovery will still be long and drawn out,” Chessen said.

Home equity loan delinquencies fell for the first time in two years to 4.12% of all accounts from 4.32% in the previous quarter. Home equity lines of credit delinquencies fell nearly a quarter percent to 1.81% of all accounts from 2.04% in the previous quarter. Property improvement loan delinquencies fell to 1.40% of all accounts from 1.63% in the previous quarter.

“The overall risk in banks’ consumer loan portfolios is improving and will continue to do so,” Chessen said. “Banks are putting losses behind them and following a prudent approach to new loans because the on-again, off-again economy is keeping risk high. Regulators are also demanding that banks remain cautious. With job growth creeping back slowly and personal incomes rising a bit, I’m hopeful that improvements in consumer delinquencies will continue.”

The first quarter 2010 composite ratio is made up of the following eight closed-end loans.

Here is a breakdown of both decreased and increased delinquencies among closed-end loans during the first quarter, according to ABA figures:

Decreased Delinquencies:

· Direct auto loan delinquencies fell from 1.94% to 1.79%.

· Indirect auto loan delinquencies fell from 3.15% to 3.03%.

· Home equity loan delinquencies fell from 4.32% to 4.12%.

· Personal loan delinquencies fell from 3.63% to 3.61%.

· Property improvement loan delinquencies fell from 1.63% to 1.40%.

Increased Delinquencies:

· Marine loan delinquencies rose from 1.63% to 1.93%.

· Mobile home loan delinquencies rose from 3.41% to 3.65%.

· RV loan delinquencies rose from 1.44% to 1.58%.

If you are struggling to pay down debt, the ABA recommends taking action sooner rather than later to resolve problems. Here are some tips:

· Talk with creditors – the sooner you talk to them, the more options you have;
· Don’t charge more purchases until your problems are solved;
· Avoid bankruptcy – it’s a short-term solution with long-term consequences; and
· Contact Consumer Credit Counseling Services at 1-800-388-2227.