First-mortgage defaults drop in November

by Francis Monfort21 Dec 2017
The first mortgage default rate declined month over month in November as defaults for other credit products remained unchanged, according to the Consumer Credit Default Indices released by S&P Dow Jones Indices and Experian.

First mortgages had a default rate of 0.66% in November, down one basis point from October. Compared to November 2016, the default rate fell from 0.70%. First mortgages are the only loan type to report a lower default rate year over year. The default rate for second mortgages was 1.08%, up from 0.79% in October.

Month over month, the bank card default rate was unchanged at 3.28% and the auto loan default rate was unchanged at 1.11%. Compared to November 2016, defaults for bank cards increased from a rate of 2.81%, as did defaults for auto loans from 1%

The November composite rate decreased one basis point from last month to 0.89%. Due to higher default rates in bank cards and auto loans compared to the year-ago period, the composite default rate showed a two-basis-point increase from 0.87%.

"Default rates on bank cards and auto loans held steady while the first mortgage default rate pulled back slightly in November," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Since both auto loan and bank card defaults have trended up for much of 2017, this is favorable. First mortgage default rates are flat to down so far in 2017.”

"The overall economy is ending 2017 on a strong note with very low unemployment, modest inflation, and real GDP up better than a 3% annual rate in the second and third quarters,” Blitzer said. “At the same time, the savings rate – personal savings as a percentage of disposable personal income – is slipping as spending rises faster than income for most Americans. As recently as October 2015, the savings rate was 6.3%; in October 2017, it was halved to 3.2%. With spending rising faster than wages, the savings rate is likely to drop further and consumers will be forced to increase their borrowing. Whether wage growth picks up, spending slows, or default rates climb remains to be seen."

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