Homes, cards, cars show differing trends

TransUnion has released three key studies in November, and trends seen are instructive to bank lenders:

Home lending: The national mortgage delinquency rate fell for the third consecutive quarter, the firm reported, settling at 5.41% in the third quarter versus 5.49% in the second quarter and versus 5.88% in the third quarter 2011. Trans Union predicts that the delinquency rate will fall in the final quarter as well, though not as significantly--perhaps to the 5.25%-5.35% range.

While this is good news in that it's showing improvement, TransUnion's Tim Martin, group vice-president of U.S. Housing, points out that the delinquency rate remains much higher, post-crisis, than the 1%-2% delinquency rate generally seen in more normal times.

The survey didn't cover the period in which Hurricane Sandy struck, but Martin says that such developments, while significant in the short term, tend to move activity overall, rather than changing it significantly. Disasters like Sandy tend to push things forward or pull them back, in other words, but the net remains more or less the same.

Exercising a greater long-term influence regionally are the economies of Florida and Nevada, for instance, where, while conditions have improved, they still remain depressed compared to many other parts of the country. Both states remain in double digits, in delinquencies, with Florida coming in at 13.09% and Nevada at 10.93% for the third quarter. Still, both states demonstrated improvement over last year's delinquency levels, as did Arizona and California, among states hardest hit by recession. The latter two states saw the best improvement in delinquency levels, third quarter compared to third quarter.

In the big picture, 22 states improved their delinquency ratios over the second quarter, and 42 showed better results compared to the third quarter of 2011.

Not all states showed improvements. Eight states and Washington, D.C., showed higher delinquencies third quarter over third quarter. Washington turned in the highest rise in delinquencies over this period.

 TransUnion defines mortgage delinquency as 60 days or more past due.

Credit card lending: While delinquencies in this area rose nationally, TransUnion expert Ezra Becker points out that the rates are still in a better neighborhood than they have been in recent years. TransUnion's ongoing research has demonstrated that people have grown stricter with their card debt, anxious to keep their lines open so they can have them available should their personal prospects turn sour.

Nationally, the credit card delinquency rate rose a bit, to 0.75% in the third quarter compared to 0.63% in the second quarter of 2012 and 0.71% in the third quarter of 2011.

"Credit card delinquencies are following a pattern similar to what we observed in 2011, with declines in the first two quarters of the year followed by an increase in the third," says Becker, who is the company's vice-president of research and consulting.

Becker says the seasonal consistency is encouraging, reflecting a return to credit usage while remaining within control.

"Credit card debt trends in 2012 are mirroring 2011," says Becker. This is a pattern of a decrease in the first quarter followed by two increases over the next six months.

"With both delinquencies and debt levels remaining quite low relative to historical norms, we are confident in the continued stability of credit card usage patterns in the short term," says Becker. He points out that 2011's delinquency levels were the lowest in many years, and that currently delinquencies, which TransUnion defines for cards as 90 days or more past due, are about half what they had deteriorated to.

Becker also makes this observation, which continues a trend seen in earlier work: "Non-prime borrowers continue to gain more access to credit. In conjunction with the growth in the overall number of card originations in the last few years, it means that the credit card pie is bigger, and non-prime consumers are getting a bigger slice of that pie. It is possible that the slight increase in delinquencies year over year can be attributed in part to the increased share among nonprime borrowers of new accounts, but even so these delinquency numbers are not a cause for concern. We've found that consumers continue to value their credit cards more than ever and will likely do so at least until unemployment further abates."

Auto lending: The national auto loan delinquency rate--defined as borrowers 60 or more days past due--increased to 0.38% in the third quarter from the 0.33% in the second quarter and 0.47% of the third quarter of 2011. Due to an improving economy and improving demand for cars, TransUnion believes delinquency rates will either remain the same or improve by a few basis points.

"Since TransUnion began tracking the auto loan delinquency rate in 1999, we have observed a seasonal increase in this variable every year between the second and third quarters," says Peter Turek, automotive vice-president at the firm. "This has occurred even with auto loan delinquencies dropping 56% since the recession high of 0.86% set in the fourth quarter of 2008. Seasonal factors include consumers balancing increased spending due to back-to-school needs and holiday purchases."