Debt-to-income levels could be under stress, default indices show

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Defaults for second lien mortgages and other types of consumer credit in October were up compared to the previous month, according to Standard & Poor's and Experian's indices.

"For the first time since January 2017, the default rate for autos, bank cards and mortgages all rose together," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a press release.

"The data does not suggest any unusual financial stress facing consumers which would explain the small, but across the board increases in default rates," he said.

However, "the one concerning item, which might explain the default numbers, is recent softness in real disposable personal income. If a widening spread between income and spending appears, defaults may fill the gap."

The composite default index was up 3 basis points from a year ago and 2 basis points from a month ago at 0.9%, and the second mortgage default rate was up 21 basis points from last year and 26 basis points from last month at 0.79%.

Also the bank card default rate was up 52 basis points from a year ago and 13 basis points from the previous month at 3.28%. The default rate for auto loans was up 3 basis points from a year ago and six basis points from September at 1.11%.

The trends suggest there is pressure on the debt-to-income ratios that single-family lenders look at closely when originating first mortgages.

But so far the first-mortgage default-rate is up by only a basis point on a month-to-month basis, and it is still 3 basis points lower year-over-year at 0.67%.

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Mortgage defaults Underwriting Consumer lending Auto lending Credit quality S&P Experian