Indices: Defaults in Decline
Findings of the Standard & Poor's and Experian Consumer Credit Default Indices show a decrease in monthly default rates for first and second mortgages that feature "typical" regional variations.
In April the S&P/Experian First Mortgage Default Index and the S&P/Experian Second Mortgage Default Index were at 3.71 and 2.49, dropping by 6.2% and 11%, respectively, compared to the previous month, and 31.1% and 45.4% compared to 2009 data.
Overall there was an improvement in loan performances across the board as the S&P/Experian Consumer Credit Default Composite Index-which measures default rates for first and second mortgages, auto and credit card loans-was at 3.85%, down by 6% from March.
The S&P/Experian Consumer Credit Default Indices measure the proportion of consumer credit accounts that go into default for the first time each month based on the balance outstanding.
Managing director and chairman of the index committee at S&P indices, David Blitzer, finds it encouraging that customer defaults continue to moderate "in the key big ticket items of first and second mortgages and autos." And what is becoming apparent now, he adds, is that in both mortgages and auto loans, "defaults bottomed out" in the first half of 2009, approximately the same time as the stock market.
By providing a timely, detailed look into the actual payment behavior of U.S. consumers, Blitzer says, the indices allow analysts to not only get a pulse on the current customer default trends but also serve as an indicator on the direction of the U.S. economy.
S&P and Experian, Costa Mesa, Calif., had previously reported they joined forces to provide a series of U.S. consumer credit default indices they expect to turn into a standard benchmark for analyzing the changing payment behaviors of borrowers.
Experian Capital Markets general manager Ethan Klemperer says the S&P/Experian Consumer Credit Default Indices offer "a clean, true measure of loan losses" worth being a market standard.
ECM's stated goal is to respond to "a growing market need" for transparent data and analytics that offer insight into consumer and business credit behavior and forecast future payment patterns on prepayments, delinquencies, charge-offs or defaults for nonagency residential mortgage-backed securities and other asset-backed securities.
What is new and a great advantage point for the S&P/Experian indices-compared to existing loan default and mortgage-backed security delinquency rate monitoring tools-is that they are based on actual payment behavior of a broad cross-section of the U.S. consumer credit population. And such pools allow for more accurate statistical findings.