Consumer Disruption, Foreclosures, Errors, and Collections: Free Money Still Works | So Good News


Powell said that in most cases, buyers are able to settle because the credit risk is very low. What consumers can’t take for a long time is higher inflation.

By Wolf Richter of WOLF STREET.

We’ll start with consumer defaults because that’s where credit problems, if left unchecked, often end up. Then we’ll look at expropriation, third-party collection, and terrorism. What is clear is the picture of consumers, still with the epidemic and rising costs.

Consumer confusion came in when free money arrived, including PPP loans, as well as various forbearance programs and restrictions on deportations. And the number of consumer defaults continues to decline dramatically and has been trending along these trends for the past year and a half.

In the third quarter, the number of bankrupt consumers rose a tad from the second quarter, to 99,000, but was still below a year ago, according to the New York Fed’s Household Debt and Credit Report, and half about the previous Good Time downloads (around 200,000):

It has taken over they have been put into the third tier and have been on the decline since the mortgage forbearance programs, when delinquent mortgages were put on ice, and no longer considered delinquent. Many of the borrowers have now gotten out of forbearance programs, either by modifying the mortgage in some way, or by selling the house and paying off the loan, which was easily possible during the rising housing prices. Pandemic free money also helped.

Pledges, after more than two quarters, fell again in Q3 to only 28,500 loans and closings, thus triggering the first steps that had begun to take place. In the Good Times before the pandemic, there were about 70,000 foreclosed mortgages, more than double the current number:

Third Party User Section it fell to a historic low in Q3, to just 5.7%, after a slight improvement in Q2. Third-party collections are registered on a consumer’s credit report when a creditor has sold a delinquent account for more than cents on the dollar to a collection agency that nets the defaulter an amount greater than what was paid:

Mortgage and HELOC loans it remained close to history. The 30-day interest rate and the combined mortgage rate rose to 2.1% (red line in the chart below), which was significantly lower than before the pandemic. In the heyday before the House Bust 1, in 2005, crime was 4.7%. In the Good Times before the epidemic, crime was about 3.5%.

The 30-day interest rate including HELOC delinquencies has dropped to 2.0%. This is related to Good Times:

Housing banks have exploded due to the explosion of housing prices in recent years, although the sale of housing has decreased in 2022. In Q3, they reached $ 16.7 trillion:

But HELOC rates have been on the decline since the HELOC boom during Housing Bust 1, and in the last year and a half they’ve fallen sharply and still haven’t gone away.

I expect that HELOC fees will increase gradually because removing the home equity using a cash-out refi is more expensive because the entire loan will come with the home equity, not an additional portion of the income.

Credit cards and personal loans: I discussed credit card fees and scams in detail here. The 30-day plus credit card rate in Q3 rose to a pre-pandemic level of 5.2% of total payments (red line). The rate of “other” consumer loans, such as personal loans, rose to 5.8% and remains below pre-pandemic levels (green line):

Car loans: I discussed prime and subprime auto loans & delinquencies in detail here. The 30-day rate including assault rose to 6.2%, still the lowest level before the outbreak.

Student loan delinquencies they are no longer delinquent, and student loans are no longer loans, according to federal student loans, because no one is paying them, and everything is still there, and the money does not earn interest, which is just about to be repaid. it was extended until mid-2023, and partial debt relief was promised but has proved difficult to deliver as a court battle has begun.

The only student loans that are delinquent are private lenders, and the overall delinquency rate — the absurd concept of student “loans” these days — has dropped:

In the category of mortgages that are called “here” (non-delinquent) peaked in Q2 2021 at 97.3% of total household loans, and has remained high ever since, including in Q3 2022.

Here’s the total amount of debt from all types of debt – mortgages, car loans, student loans, credit cards, and other consumer loans – that are “current,” as a percentage of all outstanding debt:

The Fed has already said that consumers can tighten up because the balance sheets are good – Powell mentions this in every press conference – and the credit problem is low and very low. What consumers can’t take for a long time is higher inflation.

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