The first mortgage default rate declined by two basis points from January to February, marking the first month-over-month decrease since July 2014, according to the S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for February 2015 released Tuesday.
According to February's first mortgage default index, the rate ticked downward to 1.00 percent in February from 1.02 percent in January after seven months of increases since falling to its lowest level of 0.88 in July 2014. February's first mortgage default rate represents a decline of 23 basis points from February 2014 (1.23 percent). The rate recently experienced its largest increase in the previous 15 months (five basis points) from November to December 2014.
"Mortgage default rates, the largest component in the national index, held steady and prevented a rise in the national numbers," said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "A true test of consumer credit quality and the prospects for future default rates will come in the second half of 2015 by which time the Fed will most likely have begun to raise interest rates. Given current low levels of default rates and low debt service burdens, there are no concerns of a consumer credit crisis any time soon."
The second mortgage default index, meanwhile, increased month-over-month in February by two basis points up to 0.66 percent. Year-over-year, however, this index dropped by three basis points from the 0.69 percent that was reported in February 2014.
The national composite default index, which includes first and second mortgage defaults as well as those on bank cards and auto loans, stayed flat from January to February at 1.12 percent. The national composite index was down by 18 basis points year-over-year in February (from 1.30 percent reported in February 2014). The bank card default rate and the auto default rate increased by 23 basis points and three basis points month-over-month, respectively. Blitzer said all signs point to an improving economy, combined with the Bureau of Labor Statistics Employment Summary for February which reported job gains of 294,000 nationwide for the month and a drop in unemployment rate down to 5.5 percent, its lowest level in nearly seven years.
"The combination of a strong February employment report and continued low oil prices all point to a buoyant economy with optimistic consumers," Blitzer said. "The recent, though modest, increases in default rates for bank cards and auto loans suggest that consumers are becoming more free-spending."