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Mortgage Default Rates Stabilize in July Following June’s Increases

Default NoticeThe default rates for both first and second mortgages held steady from June to July while the composite index dropped by one basis point after all three increased from May to June, according to S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for July 2015 released Tuesday.

The composite default rate, which includes first and second mortgage defaults as well as defaults on bank cards and auto loans, fell by one basis point down to 0.92 percent in July after increasing by five basis points in June from May's historic low of 0.88 percent. The first mortgage default rate was unchanged from June to July at 0.80 percent after jumping by six points in June from May's historic low of 0.74 percent.

The second mortgage default held at 0.55 percent from June to July following a spike of 13 basis points in June from a historic low of 0.42 percent in May.

Meanwhile, the bank card default rate declined by nine basis points from June to July down to 2.79 percent. The only one of the indices within the composite that increased from June to July was the auto loan default rate, which ticked up by one basis point up to 0.86 percent.

“Defaults rates across different loan types continue to follow the same pattern: bank card defaults are about two percentage points higher than auto loans or mortgages," said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "This pattern has been in place through the history of the indices and is unlikely to shift anytime soon. Even the increase in the default rate for automobile loans was a scant one basis point."

Four of the five major cities covered in the S&P/Experian report showed increases in their default rates from June to July: Chicago reported the largest increase (11 basis points, up to 1.15 percent), followed by Miami (three basis points up to 1.45 percent) and Los Angeles and New York at one basis point each up to 0.89 percent and 0.92 percent, respectively. The only one of the five major cities that experienced a decline in default rate was Dallas (down four basis points to 0.64 percent).

"Chicago did see a small bump up in defaults, bringing rates to levels seen at the start of the year," Blitzer said. "However, given overall patterns, this is not a major worry. All five of the cities covered in the release have put the financial crisis behind them and are all at pre-crisis lows. The lack of any regional differences is another sign of improving individual financial conditions and a stable economy."

Overall, the stabilizing credit default rates provide confirmation of recent reports of labor market and GDP growth, according to Blitzer.

"Recent increases in outstanding consumer credit combined with stable default rates and strong consumer sentiment point to stable individual financial conditions," Blitzer said. "However, wage increases are running at about 2 percent annually–or under 1 percent after inflation–which means that there is little margin for error should the economy stumble. At the same time, concerns over the impact of an expected Federal Reserve rate increase are exaggerated. Interest rates on consumer loans are unlikely to be affected and no immediate economic fallout is anticipated."

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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