(Nov 10): The overall level of troubled borrowing in the US economy rose modestly in the third quarter but did not appear to signal a notable deterioration in credit quality, a report from the Federal Reserve Bank of New York said on Tuesday.
Loans that were in some form of trouble stood at 5% during the third quarter, up three-tenths of a percentage point from the second quarter, the regional Fed bank said in its latest Quarterly Report on Household Debt and Credit.
Despite the rise, the overall level of trouble was consistent with conditions seen before the COVID-19 pandemic struck and was well below the levels seen during the financial crisis nearly 20 years ago.
The report noted that the transition into "early" delinquency was up for mortgages and auto loans, while the transition into "serious" delinquency for credit cards and student loans improved. The shift in mortgage debt to seriously delinquent status remained "low by historical standards," the New York Fed said.
"Although delinquency transition rates for housing debts have crept up, the overall credit quality of these loans remains strong," Donghoon Lee, an economic research advisor at the New York Fed, said in a press release.
New York Fed researchers said in a briefing that some of the troubles faced by borrowers are a holdover from the pandemic, when standards for some types of lending, such as credit cards, were eased.
In a separate blog post, Lee wrote that credit card delinquency rates "rose sharply" during the 2022-2024 period, with the biggest hit taken by those in lower-income neighborhoods.
"During the pandemic, an increasing share of new credit cards went to borrowers with lower incomes and credit scores, and those accounts are now showing higher levels of distress," Lee said, adding that "absent macroeconomic shocks, we anticipate that new credit card delinquencies will likely continue to see signs of improvement."
OVERALL DEBT LEVELS RISE
The report also flagged ongoing stress in student loans, with those borrowers continuing to grapple with the aftermath of a return to payments following a pause during the pandemic. The report said student loans that were more than 90 days past due stood at 10.9% of borrowing in the sector during the third quarter, compared with 10.6% in the second quarter.
Total household debt was up 1.8%, or $334 billion, to $19.1 trillion in the third quarter relative to the second quarter, the report said. Mortgage borrowing continued to represent the lion's share of the cumulative debt burden, with the sector up by $257 billion to $13.4 trillion amid a rise in new home-related borrowing.
The New York Fed also said that credit card borrowing in the third quarter was up $22 billion to $1.3 trillion, while auto loans were up $21 billion to $1.7 trillion.
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