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Consumer loan picture improves across the board

April 05, 2012|By E. Scott Reckard

Delinquencies are lower in all 11 consumer loan categories tracked by the American Bankers Assn., a rare occurence that reflects the nation’s improving jobs picture and progress that consumers and banks have made in cleaning up their respective financial messes.

During the fourth quarter of 2011, borrowers were current more often than in the third quarter on home equity loans and lines of credit, property-improvement loans and loans for cars, boats and mobile homes, the banker trade group said in a new report.

Delinquencies on bank-issued credit cards were at 3.27% of all accounts, down from 5.01% in the second quarter of 2009. (The decline reflects banks writing off credit-card debts as uncollectible as well as improved numbers of consumers paying on time.)

The last time the American Bankers Assn. survey showed loan performance better across the board was in the last quarter of 2004, said James Chessen, the trade group’s chief economist.

“It’s always a bit shocking when every single category shows a decline in delinquencies,” Chessen said in an interview. “It’s extremely rare.”

The bankers group has conducted the quarterly survey since the 1970s. The latest report, covering the fourth quarter of 2011, was released Thursday. It classified as delinquent any loan that was at least one monthly payment in arrears.

Consumers are reaping the benefits of several years spent hunkered down and paying debts, helped by  lower interest rates engineered by the Federal Reserve. “They’re managing the debt they do have much better, and the amount of debt as a portion of income is going down,” Chessen said.

Banks are in better shape and more willing to lend, the trade group said. That was also the finding of a recent joint report on consumer lending from Equifax and Moody’s Analytics, which showed that subprime credit-card and car loans -- made to people with blemished credit -- are quickly increasing. 

Chessen said that trend reflected confidence on the part of bankers that the economy would continue to improve.

The biggest negatives in consumer lending are housing-related loans, where delinquencies remain very high although slowly declining, and gas prices, Chessen said.

“The more money you pull out of your pocket and put into a gas tank the less you have for paying your debts and spending on other things,”  he said.

The most important factor is whether the economy generates jobs. Initial filings for unemployment  benefits are at their lowest levels in nearly four years, and the nation’s gross domestic product grew at an annualized rate of 3% in the fourth quarter.

“The connection is obvious – when someone loses a job it’s much more difficult for them to meet  their obligations,”  Chessen said. “If we continue to see steady growth in jobs we’ll see continued improvement" on the loan front.  

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