Eye On Housing
Aggregate household debt outstanding totaled $12.065 trillion in the third quarter of 2015, 3.5%, $355 billion, greater than its level of one year ago.
According to the report released by the Federal Reserve Bank of New York, housing-related debt, mortgages and home equity lines of credit rose by a combined amount of 1.3%, $109 billion. Mortgage debt outstanding rose by 1.6%, $129 billion, while the outstanding amount of home equity lines of credit fell by 3.9%, $20 billion.
Non-housing related debt outstanding also rose over the year, increasing by 8.0%, $246 billion as each component of non-housing related debt registered year-over-year increases. Auto loans rose by 11.9%, $111 billion, student loans grew by 6.8%, $77 billion, credit card debt increased by 5.0%, $34 billion, and other debt outstanding expanded by 7.3%, $24 billion. Other consumer debt includes consumer finance (sales financing, personal loans) and retail (clothing, grocery, department stores, home furnishings, gas, etc) loans. Overall household debt outstanding remains 4.8% below its third quarter of 2008 peak level of $12.68 trillion.
A previous post reported on new information in the Household Debt and Credit Report illustrating that as of 2014, the majority of the dollar amount of mortgage originations went to households with the strongest credit scores, 780 and above. Meanwhile, households with a mid-tier credit score, a score between 660 and 779, have seen their share decline from 53% in 2000 to 45% in 2014. In 2014, the share of mortgage originations going to households with a credit score between 660 and 719 was 3 percentage points less than its share in 2000 and the proportion of mortgage originations going to households with a credit score ranging between 720 and 779 fell 5 percentage points over the same period. Meanwhile, households with the weakest credit scores, those with a credit score below 660, accounted for the smallest proportion of mortgage originations.
Not only do households with the weakest credit score account for a smaller portion of mortgage originations, but data from the Federal Home Loan Mortgage Corporation, commonly referred to as “Freddie Mac” indicates that this cohort of households will also pay a higher interest rate if they are able to obtain a mortgage. During the crisis, the gap between the median mortgage rate for households with a credit score below 660 and the median rate for households with a mid-tier credit score rose. In recent years, the gap has shrunk, but has not returned to its pre-recession difference.
Freddie Mac provides loan-level data on all of the loan originations that it purchases each quarter. Each loan record includes both the credit score and the mortgage rate associated with that loan. As shown in Figure 1 above, the gap between mortgage originations for households reporting a credit score less than 660 and those with a score between 660 and 779 was relatively constant between 1999 and 2007. However, the difference in mortgage rates spiked in 2008 to 62 basis points before declining. Between 2009 and 2011, the gap shrank to 37 to 38 basis points and, over 2012 to the first quarter of 2014, the gap shank again. However, up until the first quarter of 2014, the last release available, the gap between the two sets of households remained greater than its pre-crisis levels.
In contrast, the gap in the median mortgage rate reported by households with mid-tier credit and those with the strongest credit scores has fluctuated between 0 and 13 basis points. Between the 1999 and 2007, the gap between the median mortgage rates was typically 0, but rose to 13 basis points in some years, 2001, 2005 and 2007. In 2008, the year that the difference between the median mortgage rate for households with the weakest credit and those with mid-tier credit spiked, the median interest rate for those with mid-tier credit was remained at 13 basis points above the median interest of those households with the strongest credit, and it returned to 0 by 2009. Except for 2012 and 2014, the gap between the median mortgage rate for households with mid-tier credit and the median rate for those with the best credit has been 0.
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