Equifax’s latest monthly national consumer credit trends report shows a decline from July 2011 in the amount of overall mortgage debt and a decrease in residential mortgage delinquencies. But both lag behind the “slow, but steady” overall improvement in the economy.
Overall, the report shows that between July 2011 and July 2012 there were “notable year-over-year dollar-based declines” in customer delinquencies.
First-mortgage 30-day-plus delinquency rates declined 15%, 30-day-plus delinquency rates declined 7% for revolving home equity lines of credit, and the dollar amount of first-mortgage loans transitioning to real estate owned property status declined 17%.
Overall mortgage debt is declining as more loans convert to REOs. Also more homeowners are paying down debt faster through short sales, cash-in refinancing, by shortening the mortgage term, or “by adding a bit extra” to their monthly payments, explained Equifax’s chief economist Amy Crews Cutts.
However, mortgage delinquency improvements were significantly lower compared to the 60-day-plus delinquency rate declines in other types of lending, such as 35% in auto loans, 23% in consumer finance and 21% in bank credit cards.
According to Cutts, as consumers continue to improve their credit management, in part through refinancing of existing mortgage debt at lower rates “and lower delinquency rates pretty much across the board," their new credit options have improved.
Other data also indicate any mortgage-related customer credit improvements are still relatively marginal.
For example, the July S&P Dow Jones/Experian Customer Credit Default Indices showed defaults on all other loan types continue to decrease following a trend of seven consecutive months. At the same time, the first-mortgage default rate did not change compared to June while defaults on second mortgages increased marginally.
Managing director and chairman of the index committee for S&P Dow Jones Indices, David Blitzer, warned that “most of the changes in July were small compared to the magnitude of decline,” reported during the first half of 2012. Relatively lower new mortgage default rates indicate consumers’ credit position has recovered from the financial crisis, he said, but
