Headline: Consumers Increasingly Delinquent on Repayments

Source: Los Angeles Times, 16 Mar 2001

URL: http://www.latimes.com/business/20010316/t000022854.html

Consumers fell further behind on their mortgage and credit card payments in the final months of 2000, lenders reported Thursday--a troubling sign for the nation's already slowing economy. Mortgage loan delinquencies--loans that are at least 30 days past due--jumped to 4.54% of loans outstanding in the fourth quarter, the highest rate since the third quarter of 1992, the Mortgage Bankers Assn. reported. That was up from a 4.04% rate in the third quarter and 3.82% a year ago.

Late payments on credit cards climbed to 3.34% of accounts in the fourth quarter, up from 3.21% in the third quarter and 3.22% in the fourth quarter of 1999, according to the American Bankers Assn. However, the non-mortgage delinquency figures are still below the rates of the mid-1990s and are well within what industry leaders had anticipated.

"As we expected, the number of delinquent accounts has increased as the economy has slowed," said James Chessen, the ABA's chief economist, in a prepared statement. "Consumers who are carrying a higher debt load are most likely to feel the effects of an economic slowdown." Moreover, the West Coast continues to buck the national trend, with the lowest rate of mortgage delinquencies by region.

Economists expected to see rising delinquency figures nationwide, largely because personal wealth has declined, the growth in personal income has slowed and severe weather and rising energy costs have squeezed consumer pocketbooks.

The weather issue may have played a particularly pivotal role in mortgage delinquency rates, which rose the most in areas such as the Northeast that were hardest hit by severe cold during the final months of 2000. "You would expect to see some deterioration in credit quality at this point in the economic cycle," said Gary Schlossberg, senior economist with Wells Capital Management, a San Francisco-based investment management company owned by Wells Fargo & Co.

Far more troubling to economists is the overall level of consumer debt service, which measures what people are supposed to be paying on their debts each month, measured as a percentage of disposable income. That figure recently hit 14.1% of after-tax income, the highest level since 1987, said Paul L. Kasriel, chief economist with Northern Trust Corp. in Chicago. And it may understate the real debt burden because it doesn't account for automobile leases, which have soared in the last several years, he added. "This debt represents a time bomb for the economy," Kasriel said. "Maybe that time bomb has started to tick."

Heavy debt burdens could hinder consumers from buying additional goods and services, which could worsen an already slowing economy, he said. "The higher that number is, the more difficult it is to make these payments and the less consumers have left over to spend," Kasriel said. (Analysts also note that the debt-service-to-income figure, as calculated by the Federal Reserve, is based on total debt and income data for all U.S. households, including those with no debts. Many consumers have much higher monthly burdens.)

However, its too early to say whether consumers will pare their spending and send the economy into a more severe slowdown, economists said. "The real key to this is how many people are going to lose their jobs and how many are going to be forced to roll into jobs that pay less," Schlossberg said.

Those factors ultimately will determine how significantly consumers need to scale back and whether the delinquency rates will soar over the coming months. "We don't really know if we are in a recession now," said Kasriel. "But if we do go into a recession, consumer debt levels could make it a deeper recession than otherwise would be the case as people struggle to pay their debts and therefore can't buy anything else--and even have to cut back dramatically on their discretionary spending."

By region, the mortgage delinquency rate rose from 3.95% to 4.51% in the Northeast; from 3.69% to 4.28% in the Midwest; and from 4.97% to 5.52% in the South. The mortgage delinquency rate was the lowest in the West, where it rose from 3.16% to 3.51%. * * *

In the Hole

In a bad sign for the U.S. economy, mortgage delinquencies in the fourth quarter climbed to their highest rate since the third quarter of 1992. Credit card delinquencies also rose, although they are still below the levels of the mid-1990s.

Mortgage Delinquencies Credit Card Delinquencies Percentage of accounts overdue Percentage of accounts overdue 1991 Qtr. 2: 5.2% 1996 Qtr. 4: 3.72% 2000 Qtr. 4: 4.54% 2000 Qtr. 4: 3.34%

Sources: Mortgage Bankers Assn., American Bankers Assn.

-- Andre Weltman (aweltman@state.pa.us), March 16, 2001

Answers

Mega domino - We all know that American consumers have reached unprecedented levels of indebtedness. I don't know why the financial stocks have held up so well. They're just now feeling the strain of the general economic environment.

With the help of small puzzle pieces like this, its childs play to see that the short-term and long-term prospects are not good for the big credit card companies and other big lenders even with the new bankruptcy bill imposed.

P.S. If you are employed then your not looking in the want ads but I'll tell you what I've found. Here in Phoenix I look at the want ads and what do you suppose is very popular right now and in great demand. COLLECTORS! Dozens of credit card companies are advertising for collectors, skip tracers and other associated trades. Its a booming industry.

-- Guy Daley (guydaley@altavista.com), March 16, 2001.