U.S. Consumer Debt Shrinks as Credit Delinquencies Stabilize

U.S. consumers continued to reduce balances tied to mortgages and home equity lines of credit in the fourth quarter of 2011, while other forms of debt, including credit cards and student loans, edged upward.
Overall, declines in household debt continued in 2011, driven by reductions in real estate-related debt and continued – but slowing – declines in delinquency, bankruptcy and foreclosure rates, according to the New York Federal Reserve’s latest report on household debt and credit.
Credit account inquiries and openings suggest an increased interest by consumers in obtaining access to credit as 2011 drew to a close.
Although delinquency rates remain elevated historically – particularly compared to pre-financial crisis levels – consumers are becoming slightly better disciplined.
After a mild uptick in the third quarter, total household loan delinquency rates resumed their downward trend in the fourth quarter.
Aggregate consumer debt fell $126 billion to $11.53 trillion in the fourth quarter of 2011, a 1.1 percent decrease from the $11.66 trillion reported in the prior quarter, according to the New York Fed.
The report also found that $1.12 trillion of consumer debt (or 9.8 percent of outstanding debt) is currently delinquent, with $824 billion seriously delinquent (at least 90 days late).
About 2.2 percent of mortgage balances transitioned into delinquency during the fourth quarter, resuming the recent trend of reductions in this category. However, delinquency rates remain high historically.
“While we continue to see improvements in the delinquent balances and delinquency transition rates this quarter, there has been a noticeable decrease in the rate of improvement compared to 2009-2010,” said Andrew Haughwout, vice president and economist at the New York Fed. “Overall it appears that delinquency rates are stabilizing at levels that remain significantly higher than pre-crisis levels.”
Other fourth quarter 2011 highlights from the New York Fed’s report include:

  • Mortgage and HELOC balances on consumer credit reports fell $134 billion (1.6 percent) and $12 billion (1.9 percent) respectively.
  • Non-real estate indebtedness rose $20 billion (0.8 percent) during the quarter, resuming a trend of increases.
  • Aggregate credit card limits rose by $98 billion (3.6 percent), resuming the trend of increases observed in the first half of the year.
  • Open credit card accounts increased by 3 million to 386 million.
  • Credit account inquiries within six months, an indicator of consumer credit demand, increased (2.7 percent) for the third quarter in a row.
  • Roughly 289,000 individuals had a foreclosure notation added to their credit report in the fourth quarter, a 9.5 percent increase from the third quarter.
  • Student loan indebtedness increased slightly, to $867 billion.

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