S&P/Experian: Default Rate On First Mortgages Edged Up Slightly In June

The default rate for first mortgages was about 0.65% in June – an increase of two basis points compared with 0.63% in May, according to the S&P/Experian Consumer Credit Default Indices.

The increase follows three consecutive months of decreases. In general, the default rate on first mortgages has been falling precipitously during the past two years.

Meanwhile, the national default rate for auto loans in May was about 0.91%, down one basis point compared with May, and the default rate for credit cards was about 3.11%, up two basis points compared with May. The composite of all three represents a national default rate of about 0.82%, up one basis point from the previous month.

“Looking at the economy and credit conditions, American consumers are in good shape,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. “The S&P/Experian Consumer Credit Default Indices covering mortgages and auto loans are within a few basis points of the lowest levels seen in 12 years, while the bank card default index is only 62 basis points above its low.

“Economic conditions are also favorable, with continued low inflation and low interest rates, declining unemployment, a rising stock market, and modest economic growth,” Blitzer says. “Consumers recognize the positive environment: Consumer confidence is high, and retail sales were up in June.”

For several reasons, however, the overall default rate could soon start to rise again, Blitzer says.

“First, the bank card default rates have risen over the last 11 months, and consumers continue to apply for additional accounts,” he says. “Second, personal income growth is weak – only slightly ahead of inflation. At some point, inflation will move back to the Fed’s two percent target or higher, and interest rates could even creep up – events that could strain consumers unless gains in wages accelerate.”


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