Default Indices from S&P and Experian Signal Improving Credit Quality

The default rates on first and second mortgages dropped between the months of May and June, and both measurements are down sharply from their year-ago readings, according to new consumer data released by ""S&P Indices"":http://www.standardandpoors.com/indices and ""Experian"":http://www.experianplc.com.

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Their monthly assessment shows that the default rate on first mortgages fell from 2.09 percent in May to 2.02 percent in June. Last month's index level is 125 basis points below the first-mortgage default rate of 3.27 percent recorded by the agencies in June 2010.

The default index on second mortgages slipped from 1.42 percent in May to 1.40 percent in June. The second-mortgage default rate is now 101 basis points below the June 2010 reading of 2.41 percent.

S&P and Experian recorded even steeper declines in the default rates for auto loans and bank cards last month, signaling that the financial health of consumers is improving across the board.

""Default rates are continuing to decline across major consumer credit categories,"" said David M. Blitzer, managing director and chairman of the index committee for S&P Indices.

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Blitzer says this combined with recent news from the Federal Reserve that revolving credit rose in May for the first time since 2008 ""is a positive sign for an economy suffering from a lack of consumer spending.""

S&P and Experian noted in their report that consumer credit defaults varied across major cities.

Among the five major metropolitan statistical areas (MSAs) spotlighted by the agencies each month, Chicago experienced the largest increase in default rates on a month-to-month basis when looking across all four loan categories (first and second mortgages, auto loans, and credit cards).

Dallas and Miami posted moderate increases, however Miami’s overall default rate continues to outpace the other four cities by more than 300 basis points in some cases.

“Looking at the five leading cities highlighted in this report, the lingering effects of the housing bust can be seen in the Miami where default rates remain higher than the other cities,"" Blitzer said.

New York and Los Angeles saw their default rates decrease between May and June.

All five metro areas reported default rates below year-ago levels.

Jointly developed by Standard & Poor's and Experian, the S&P/Experian Consumer Credit Default Indices track the default experience of consumer balances across major loan categories.

The indices are calculated based on data extracted from Experian's consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.

Experian's base of data contributors includes leading banks and mortgage companies, and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.