Mortgages Less Likely to Become Seriously Delinquent


Data released by the Federal Reserve Bank of New York indicates that aggregate consumer debt outstanding, which includes mortgages, contracted by 0.7% or $78 billion on a not seasonally adjusted basis in the second quarter of 2013. This is the second consecutive quarter that aggregate consumer debt has declined on a quarter-over-quarter basis and the 7th decline in the past two years. Over the past four quarters, which lessens the influence of seasonal factors, aggregate consumer debt outstanding has declined by 2.0% or $231 billion. Aggregate consumer debt outstanding has declined on a 4-quarter basis in every quarter since the fourth quarter of 2008. Overall, since reaching a peak in that quarter, aggregate consumer debt has contracted by 12.0% or $1.5 trillion.

According to the data, the decline in total consumer debt largely reflected a contraction in mortgage debt outstanding. Mortgage debt outstanding, which accounted for 70.3% of aggregate consumer debt in the second quarter of 2013, fell by $306 billion, 3.8%, over the past year. Credit card debt fell by another $4 billion, 0.6%, and other consumer debt, which includes consumer finance loans such as personal loans and retail debt such as department store loans, was lower by $16 billion or 5.1%. These declines were partially offset by continued growth in auto loans and student loans. Over the past year auto loans have expanded by $64 billion, 8.5%, and student loans have grown by $80 billion or 8.8%.

Mortgage debt outstanding falls when, on net, consumers either pay off or default on their mortgage. A previous blog post illustrated that a small portion of mortgages 30-60 days late reach the default stage, but the likelihood of default becomes all but certain if a mortgage becomes 90 or more days late. As a result, determining the likelihood that a mortgage moves from the 30-60 days late stage to the 90 or more days late stage can help analysts anticipate future mortgage defaults. A declining rate of transition from 30-60 days late to 90 or more days late suggests that mortgage defaults are having a shrinking impact on the amount of mortgage debt outstanding.


The chart above shows that the transition rate of mortgages 30-60 days late to 90 or more days late, which averaged 14.0% between 2003 and 2006, peaked at 44.2% in the first quarter of 2009 but has since declined to 19.8%. An increase in the transition rate from 30-60 days late to 90 or more days late means that a smaller share of mortgages that are 30-60 days late either “cure” or remain in this stage. According to the chart, the percentage of mortgages remaining 30-60 days late declined between 2006 and 2009, but the “cure” rate fell even more. After dropping to 20.5% in the third quarter of 2009, the “cure rate” has since risen to 35.8%, but it is still 8.1 percentage points below its 2003-2006 average. The residual, the portion of mortgages remaining 30-60 days late, has climbed 11.5 percentage points to 44.4% and is 2.3 percentage points above its 2003-2006 average.

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