S&P/Experian: Default Rate On First Mortgages Increased Slightly In October

The default rate on first mortgages was about 0.70% in October – a slight increase compared with 0.67% in September but a significant decrease compared with 0.81% in October 2015, according to the S&P/Experian Consumer Credit Default Indices.

The default rate for second mortgages also increased slightly: It was 0.58% compared with 0.56% in September. It was 0.56% in October 2015.

Meanwhile, the default rate on bank cards remained flat month over month, at 2.76%, while the default rate for auto loans was 1.08%, up from 1.05%.

“Consumer credit and mortgage debt outstanding are rising, and economic growth picked up in the third quarter,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a release. “These positive signs are accompanying small increases in the consumer credit default rates. While the rise in defaults is minor, it is seen in all but one credit category: The bank card default rate was unchanged, while mortgages and auto loans saw increases.”

Among the five cities tracked in the report, four experienced higher default rates.

“With recent reports showing improved consumer sentiment and the holiday spending season fast approaching, default rates may bear scrutiny,” Blitzer says.

However, he notes that the data in the report pre-dates the election.

“It is too early to tell if the elections will affect consumers’ borrowing plans,” he says. “However, interest rates are likely to rise over the next year and may put upward pressure on consumer credit interest rates and lending terms. Recent comments by Federal Reserve officials point to a tightening in December. Market interest rates led by the 10-year Treasury note rose sharply last week.

“Most analysts expect the new administration to expand federal spending and cut taxes – two forces likely to push interest rates higher,” Blitzer adds. “For consumers, higher interest rates will be seen first in mortgages.”


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