Friday, April 4, 2008

Late payments on consumer loans at 16-year high

NEW YORK — More Americans have fallen behind on consumer loans than at any time in nearly 16 years, as credit problems once concentrated in mortgages spread into other forms of debt.
In a quarterly study, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.65% in the fourth quarter from 2.44% in the third quarter, and from 2.23% a year earlier.

The rate of delinquencies was the highest since a 2.75% rate in the first quarter of 1992. It provides a fresh sign the nation's economy is slowing, and may be in recession.

"There's no question that the economy is weakening beyond housing, resulting in the loss of household purchasing power," said John Lonski, chief economist at Moody's Investors Service.

"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."

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ABA Chief Economist James Chessen attributed the jump in the delinquency rate largely to auto loans.

Late payments on "indirect" auto loans, which are made through dealerships, totaled 3.13%, the highest on record. Delinquencies on direct auto loans rose to 1.90%, a 2-1/2-year high.

Credit and debit card delinquencies rose to 4.38% from the third quarter's 4.18%, following four straight quarterly declines.

Housing wasn't spared. Delinquencies on home equity loans rose to a 2-1/2-year high of 2.39%, and on home equity lines of credit rose to 0.96%, matching a level last seen in the fourth quarter of 1997.

The ABA study covers more than 300 banks that extend a majority of outstanding consumer loans. Its study covers direct auto, indirect auto, home equity, home improvement, marine, mobile home, personal and recreational vehicle loans.

Losses tied to mortgages, credit cards and other consumer loans are expected to hurt quarterly results at large lenders such as Citigroup (C), Bank of America (BAC) and Wachovia (WB), and at more specialized lenders such as GMAC, the auto finance and mortgage company.

Financial companies worldwide have written off more than $200 billion related to subprime mortgages and other debt, and analysts expect tens of billions of dollars of additional write-downs for the just-completed quarter.

Labor market woes won't help. Economists surveyed by Reuters expect the government on Friday to report the economy shed 60,000 jobs in March, boosting the unemployment rate to 5% from February's 4.8%.

"Debt repayment abilities of consumers should continue to erode until the labor market firms," Lonski said. "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."

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