Mortgage Default Indices Continue Falling to Historic Lows

DSNews  By:  Brian Honea  June 17, 2015

The national composite default index reported a historic low for the second month in a row in May, one of four out of five national indices to report historic lows for the month, according to S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for May 2015 released Tuesday.

The composite index declined by nine basis points from April to May, down to 0.88 percent, a historic low for the second consecutive month. The first mortgage default rate also posted a decline of nine basis points from April to May down to 0.74 percent, also a historic low. The second mortgage default rate fell by one basis point for the same period, down to a historic low of 0.42 percent.

The auto loan default rate and the bank card default rate, which combine with the first and second mortgage default rates to make up the national composite index, both declined substantially from April to May. The auto loan default rate fell eight basis points down to 0.86 percent, a historic low, and the bank card default rate dropped by 20 basis points down to 2.98 percent, its first decline in five months.

Consumer credit default rates are below pre-crisis levels, at new lows and continue to drift down,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “These low levels should not come as a surprise: interest rates haven’t turned up, consumer debt service as a proportion of household income is close to its record low, and the Federal Reserve reported that consumer wealth was at a peak in the first quarter of 2015. Nor should one assume that debt levels and defaults are low because no one is spending; on the contrary, May light vehicle sales were the highest since July 2005 and retail sales jumped. The economy looks good, consumers are spending and credit usage is rising. The combination of low debt service and economic expansion should ease worries about the fallout some fear when the Federal Reserve boosts interest rates.”

Four of the five major cities measured in the continued month-over-month declines in their respective default rates, with Dallas reporting a drop of 20 basis points down to a record low of 0.70 percent in May. In New York, the default rate fell by 15 basis points down to a historical low of 0.95 percent in May. Miami experienced a decline for the second consecutive month, this time by three basis points down to 1.17 percent. Chicago reported a decline for the third straight month in May, down by five basis points to 1.00 percent. The only one of the five major cities that experienced an increase in May was Los Angeles, where the default rate jumped by five basis points up to 0.95 percent – the third consecutive monthly increase.

“Two of the five cities – New York and Dallas – reported their lowest mortgage default rates since the series started in April 2004; the other three cities reported post-recession lows,” Blitzer said. “During the housing collapse, Miami was one of the hardest hit cities in the country; Los Angeles also experienced a sharp rise in defaults and foreclosures. These figures are another indication that housing is recovering. Moreover, other data on financial difficulties confirm that foreclosures are declining and consumers’ capability and willingness to borrow are improving.”


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