| Late Loan Payments Hit High |
| By Credit Federal |
Published
04/5/2008
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Financial News
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High Record Late Loan Payments Increase Lender Risk
The number of borrowers with late loan payments is at a 16 year record.
According to the American Bankers Association, loans at least 30 days past due rose from 2.44% to 2.65% from the third to fourth quarter, whereas one year ago the rate was 2.23%.
The rate of late loan payments is now the highest since 1992, when it was 2.75%. The late payment increase signals the nation's economy is slowing and may be in recession.
According to John Lonski, chief economist at Moody's Investors Service, "There's no question that the economy is weakening beyond housing, resulting in the loss of household purchasing power. Deterioration of household credit should continue through 2008, though the rate may moderate," he added. "If it intensifies, then the current recession may prove more severe than anticipated." He also added: "Debt repayment abilities of consumers should continue to erode until the labor market firms. It will be difficult to have a firming of the labor market if household purchasing power continues to suffer from faster growth in food and energy prices, relative to income."
ABA Chief Economist James Chessen blamed the increased late payment rate mainly to auto loans. Late payments on indirect, dealership auto loans totaled 3.13%, the highest on record. Delinquencies on direct auto loans rose to 1.90%, a 2.5 year high.
Debit and credit card late payments jumpted to 4.38% from the third quarter's 4.18%, suffering four straight quarterly declines.
Meanwhile, delinquencies on home equity loans rose to a 2.5 year high of 2.39%, and on home equity lines of credit rose to 0.96%, matching a level last seen at the end of 1997.
The ABA study entails over 300 banks which extend a majority of outstanding consumer loans. Its study includes both direct and indirect auto loans, home equity, home improvement, marine, mobile home, personal and recreational vehicle loans.
Losses connected to mortgages, credit cards and other consumer loans are expected to damage quarterly results at large lenders such as Citigroup, Bank of America and Wachovia, as well as GMAC, the auto finance and mortgage company.
Globally, financial companies have written off more than $200 billion related to subprime mortgages and other bad debt, and analysts expect tens of billions of dollars more to be written off.
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