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Reversing the Trend: Downfall Seen in Defaults

Default Notice BHData through September 2016, recently released by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices [1], showed drops in numerous default rates, a reverse of the trend seen last month.

"Data from the Federal Reserve shows that consumer credit outstanding continues to expand," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "After increasing by 7.2 percent in 2014 and 7.0 percent in 2015, growth this year is running at an annual rate of 6 to 7 percent. Despite the continued growth in total consumer credit extended and the currently very low interest rates, we are not seeing any deterioration in consumer credit defaults. Rather, the default rates for major categories and for the five cities highlighted in this report continue to drift down to the lowest figures seen in 12 years.”

The report shows that composite default rate was 0.84 percent, down a basis points from the previous month but down five basis points from the year prior. Likewise, the first mortgage default rate reported 0.67 percent for September, also down a basis points from the prior month but down nine basis points from the year prior. For the second mortgage default rate, the report shows it up four basis points from the previous month from 0.52 percent to 0.56 percent in September. Likewise, this was a jump up nine basis point from September of 2015.

Data for the five major cities showed no increases this from the past month, with all but one reporting lower default rates month over month. New York showed a rate of 0.86 percent for September, down five basis points from 0.91 percent in August. Chicago had a default rate six basis points down from the prior month resulting in 0.87 percent this month. Los Angeles was the third city this month to see its default rate decrease, specifically a basis points from August to 0.59 percent. Miami’s default rate of 1.12 percent was a decrease of nine basis points from August. Dallas remained stagnant with a default rate of .74 percent.

"Among the factors supporting the favorable trends in consumer credit defaults are the economy's underlying growth and continuing gains in employment, increases in personal income, and low inflation,” said Blitzer. “A rare decline in mortgage debt outstanding and slower growth in consumer credit following the 2007-2009 recession contributed to improvements in consumers' financial condition which has been sustained in the last few years."