NY Fed: Household Debt Nears New Record of $13 Trillion

NY Fed: Household Debt Nears New Record of $13 Trillion

NY Fed: Household Debt Nears New Record of $13 Trillion

Aggregate delinquency rates ticked up slightly, from 4.8% to 4.9%.

New research from the New York Federal Reserve found a spike in the delinquency rate for subprime loans originated by auto finance companies.

Credit card and auto loan flows into delinquency (defaults) increased.

Delinquency rates have been creeping higher for certain loans in a sign some Americans are under growing financial stress as the total debt held by USA households continues to hit new highs. The New York Fed said the low overall delinquency figure masks significant deterioration in those loans over the past few years.

We reported one year ago that amid high levels of originations to subprime borrowers, subprime balances had been growing quickly, and these trends have mostly continued.

Van der Klaauw noted that a closer look at auto loans "revealed notable differences" between bank loans and those from auto finance companies, usually vehicle dealers or manufacturers, which make up three-quarters of all auto loans.

In general, many new loans last quarter went to households with healthy credit.

Newell Brands Inc. (NWL), Regions Financial Corporation (RF)
In general, more thrust is placed on most recent actions by assigning higher weights to it than those assigned to past movements. The firm owned 716,272 shares of the company's stock after acquiring an additional 208,038 shares during the quarter.

But even with its growth in recent years, the volume of auto loans outstanding is dwarfed by housing-related debt, which is the major form of borrowing by American households.

Wall Street has been anxious about the subprime-auto-loan market for some time.

Although this amount has increased steadily in absolute terms, as a share of the total outstanding auto loan balance, it has been fairly steady at around 24 percent since about 2011. In contrast, the delinquency rate for auto finance companies has been sharply increasing since 2014, by more than 2 percentage points.

"Although the impact on the larger financial sector may be muted, there are over 23 million consumers who hold subprime auto loans", the report said.

"Deteriorating credit performance will be more acute in the subprime segment, driven to some extent by the expansion of less-tenured independent auto finance companies that have demonstrated higher-risk appetites and less underwriting discipline", it said.

"The overall delinquency rate for auto loans - published in our Quarterly Report - shows only a very slow increase masking the sharp rise in subprime delinquency, which is diluted by the increase in prime loans with better performance", the report said.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of NY or the Federal Reserve System. "These consumers may find their credit reports further damaged after a default or encounter further financial difficulties after experiencing a auto repossession".

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