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Composite and Mortgage Default Indices Fall to Historic Lows

Default NoticeThe national composite default index and both mortgage default indices posted historical lows in April, according to S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for April 2015 released Tuesday.

April's composite default index fell by eight basis points from March down to a historical low of 0.97 percent, its lowest level since July 2014. The composite index had just fallen from 1.12 to 1.05 from February to March, its first month-over-month decline in eight months.

Meanwhile, the second mortgage default rate declined by seven basis points down to a historical low of 0.43 percent. It has declined by 23 basis points in the last two months. The first mortgage default index fell by nine basis points from March to April, its largest decrease since May 2014, down to a record low of 0.83 percent.

Among the other two indices that comprise the composite default index, the auto loan default rate fell nine basis points to 0.94 percent, its lowest level since last June, and the bank card default rate rose by 19 basis points up to $3.18 percent, its highest reported rate in nearly two years.

"Continued improvements in the economy and the labor markets seen in the April unemployment rate and job growth suggest consumers have reasons to be optimistic," said David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. "Apparently, that optimism has a darker side in rising defaults among bank card users. However, the current default rates are lower than those experienced before the financial crisis and should not present any significant economic concerns. Moreover, default experience in the mortgage series continues to improve. Overall, consumer credit conditions support further economic activity."

Four out of the five major cities measured – New York, Chicago, Dallas, and Miami – reported major decreases in their default rate from March to April, with Los Angeles being the only outlier. Miami experienced the largest decline – 19 basis points, down to 1.20 percent. Miami also had the largest year-over-year decline in its default rate (78 basis points).

"Among the cities, the notable trend is that the default rates for all five continue to move closer and closer together," Blitzer said. "This is markedly different from the financial crisis when the default rates for Miami and Los Angeles were substantially higher than the other cities, especially compared to low rates in Dallas. City composite default rates are driven by first mortgage default rates and reflect the extent to which home prices fell after 2006. These patterns are another sign that housing is returning to more normal conditions."

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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