US con­sumers rack up $12.7tn in debt

Gen­eral ar­rears less of a prob­lem than be­fore crash but some stu­dents strug­gle

Financial Times USA - - FRONT PAGE - SAM FLEM­ING — WASH­ING­TON

House­hold debt has sur­passed its pre-cri­sis peak, ex­pos­ing some cat­e­gories of bor­row­ers to strain as they try to meet obli­ga­tions. Alerts were raised over stu­dent, credit card and car loans.

House­hold debt in the US sur­passed its pre-cri­sis peak in the first quar­ter, ex­pos­ing some cat­e­gories of bor­row­ers to fi­nan­cial strain as they try to keep up with their obli­ga­tions.

Con­sumer debt bal­ances to­talled $12.73tn at the end of the first quar­ter of 2017, fig­ures from the Fed­eral Re­serve Bank of New York showed, ex­ceed­ing the 2008 peak of $12.68tn.

The share of debts fall­ing into ar­rears is now markedly lower than in the lead-up to the re­ces­sion across a range of types of lend­ing, with mort­gage bor­row­ers’ fi­nances prov­ing par­tic­u­larly solid. An ex­cep­tion is stu­dent debt, where the per­cent­age of loan bal­ances go­ing into “se­ri­ous delin­quency” has been hov­er­ing at around a 10 per cent an­nual rate over the past five years.

The lat­est fig­ures also showed a jump in the share of credit card bal­ances that are fall­ing be­hind, as well as signs of trou­ble in mo­tor loans, but in most ar­eas the dif­fi­cul­ties are less acute than dur­ing the credit boom and bust.

The US sub­prime mort­gage crash has left a last­ing legacy on the credit mar­kets, with mort­gage len­ders in par­tic­u­lar prov­ing far more cau­tious about ex­tend­ing home loans to in­di­vid­u­als with weaker credit records.

Only 3.5 per cent of home loans went into ar­rears in the first quar­ter, com­pared with an­nu­alised fig­ures of at least 10 per cent from the third quar­ter of 2008 to the sec­ond quar­ter of 2010.

Just un­der $18bn of mort­gages were ex­tended to bor­row­ers with weaker credit scores com­pared with nearly $115bn in the first quar­ter of 2007.

The ab­sence of wide­spread loan de­faults was at­trib­uted in part to a shift in lend­ing to­wards older as well as more cred­it­wor­thy bor­row­ers, the New York Fed said.

About 203,000 con­sumers had a bank­ruptcy no­ta­tion added to their credit re­ports in the first quar­ter, a 1.7 per cent drop from the same quar­ter last year and a record low.

“These shifts in bor­row­ing pat­terns and char­ac­ter­is­tics of bor­row­ers, paired with the long eco­nomic re­cov­ery and a strong labour mar­ket, have re­sulted in very low delin­quency rates for most types of debts ex­cept for stu­dent loans,” New York Fed econ­o­mists An­drew Haugh­wout, Donghoon Lee, Joelle Scally, and Wil­bert van der Klaauw said in a blog post.

Stu­dent debt has be­come a prob­lem area for the US econ­omy in re­cent years. Many Amer­i­cans have bor­rowed heav­ily in the be­lief that con­tin­u­ing their ed­u­ca­tion af­ter high school is the best way to se­cure higher wages, but now find that the bur­dens out­weigh the ben­e­fits.

Stu­dent loans sur­passed credit cards in 2012 as hav­ing the worst delin­quency rates in con­sumer credit. Out­stand­ing stu­dent loan bal­ances in­creased fur­ther in the first quar­ter, reach­ing $1.34tn.

Econ­o­mists have also been rais­ing con­cerns about the de­te­ri­o­rat­ing per­for­mance of auto loans. Some 7.35 per cent of loans moved into ar­rears of at least 30 days in the first quar­ter, com­pared with just over 10 per cent in the worst days of the down­turn. A year ear­lier the level was 7.27 per cent.

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