Auto Loans, Home Equity Delinquencies Rise in Third Quarter 2008: ABA

In the latest sign that consumers are under financial stress, indirect auto loan and home equity lines of credit (HELOC) delinquencies reached their highest levels ever during the third quarter of 2008, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin. In addition, the composite ratio, which tracks eight closed-end installment loan categories, rose 22 basis points to 2.90 percent of all accounts (seasonally adjusted), the highest level since 1980.

ABA Chief Economist James Chessen said the figures show a continued weakening of the U.S. economy.

"The number one factor in rising consumer credit delinquencies is job losses. With one million jobs lost in the first three quarters and two and a half million expected for the year, delinquencies of all types of consumer loans will likely increase in the coming quarters," Chessen said.

Delinquencies for indirect auto loans, which account for 90 percent of auto loans, rose 18 basis points to a record 3.25 percent. HELOC delinquencies rose seven basis points, marking another record high at 1.15 percent.

The bank card category was one of only two that showed a decline in delinquencies, dropping 34 basis points to 4.20 percent of all accounts. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

"While some people are relying on credit cards to meet daily expenses like food and gas, many are being careful not to add new debt. Reducing debt and building up cash reserves are good strategies right now. If you’re under financial stress, credit cards can be a bridge to meet daily expenses. And, unlike other loans with fixed payments, credit cards let you adjust monthly payment amounts. This flexibility is certainly helping people manage debt better during this difficult economic period," Chessen said.

The third quarter composite ratio is made up of the following closed-end loans. All figures are seasonally adjusted based upon the number of accounts.

Home equity loan delinquencies increased from 2.56 percent to 2.63 percent.
Property improvement loan delinquencies increased from 1.49 percent to 1.63 percent.
Indirect auto loan delinquencies increased from 3.07 percent to 3.25 percent.
Direct auto loan delinquencies fell from 1.77 percent to 1.71 percent.
Marine loan delinquencies increased from 1.54 percent to 1.82 percent.
RV loan delinquencies increased from 1.07 percent to 1.27 percent.
Mobile home loan delinquencies increased from 3.03 percent to 3.08 percent.
Personal loan delinquencies increased from 2.67 percent to 2.69 percent.

Chessen advised consumers to watch for warning signs of financial problems and act quickly. Warning signs of overextended credit include:

Paying only the minimum payment month after month;
Being out of cash constantly;
Being late on important payments such as rent or mortgage;
Taking longer and longer to pay off balances; and
Borrowing from one lender to pay another

For homeowners having trouble paying their mortgage, ABA strongly recommends they consult www.hopenow.com or call 1-888-995-HOPE. HOPE NOW is a cooperative effort between counselors, investors, and lenders to help homeowners in distress.

For others who are having trouble paying down debts, ABA advises taking action — sooner rather than later — to solve debt problems with the following 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.

For more information on budgeting, saving and managing credit, visit the ABA Education Foundation’s Consumer Connection web page at www.aba.com.

The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation’s banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.6 trillion in assets and employ over 2 million men and women.

Auto Loans, Home Equity Delinquencies Rise in Third Quarter 2008: ABA

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