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Loan Credit Default Rates Hit Pre-Recession Lows

OCT 26, 2012 5:08pm ET

Consumer credit defaults reached new lows in September that were last seen prior to the recession, according to data released by S&P Dow Jones and Experian.

First mortgage default rates for consumers decreased from 1.40% in August to 1.36% in September. This rate has either gone down or been flat for nine consecutive months, which represents an overall positive sign for the housing industry.

Meanwhile, at 0.64%, the second mortgage default rate also fell to the lowest amount in its eight-year history. A year ago, this index was sitting at 1.32%.   

Another loan type looked at in the monthly report includes bank cards, which declined 7 basis points to a mark of 3.70%. Only the auto loan default rate increased, from 1.09% to 1.11%, month-over-month.  

Overall, the national composite was down month-over-month from 1.50% in August to 1.46% in September.

“We think it is very fair to say that 2012 has proven to be a period of financial repair for consumers,” said David M. Blitzer, managing director and chairman of the index committee for S&P Dow Jones Indices. “Consumers’ financial condition continues to improve as witnessed by these declining credit default rates.”

All five cities covers by S&P/Experian showed a decrease in their default rates, with three (Chicago, New York and Los Angeles) reaching pre-recession lows.

Chicago’s rate was 1.82% in September, down from 1.92% from the prior month. For the second straight month, Los Angeles saw a drop in consumer credit default rate to reach 1.45% in September. New York’s default rate fell the most out of the five cities with a 21 basis point decline month-over-month to 1.28%.

Even though Dallas and Miami rates are not quite at post-recession lows, S&P/Experian said both are close to them. Dallas’ September rate was 1.03%, down four basis points from August. Miami’s rate fell by 14 basis points to 2.48%, substantially less than the 18.89% rate seen more than three years ago.

“There is no doubt that from a borrowing perspective the consumer is in a much better place than two or three years ago,” Blitzer added. “We have seen broad-based declining trends in default rates through all of 2012, and all markets and loan types are at or near pre-recession lows.”