By Michael S. Derby
Nov 10 (Reuters) – The overall level of troubled borrowing in the US economy rose in the third quarter but did not appear to signal a notable deterioration for overall credit quality, a report from the Federal Reserve Bank of New York said Tuesday.
Loans that were in some form of trouble stood at 5% during the third quarter, up 0.3% percentage point from the second quarter, the 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 woes seen during the financial crisis nearly 20 years ago.
The bank noted that the transition into “early” delinquency was up for mortgages and auto loans, while 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 bank said in its report.
“Although delinquency transition rates for housing debts have crept up, the overall credit quality of these loans remains strong,” said Donghoon Lee, Economic Research Advisor at the New York Fed, in a press release.
Bank researchers said in a briefing that some of the troubles faced by borrowers are an overhang from the pandemic, when standards for some types of lending, like credit cards, were eased.
In a separate blog post, Lee wrote that credit card delinquency rates “rose sharply” during the 2022 to 2024 date range, 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 “absent macroeconomic shocks, we anticipate that new credit card delinquencies will likely continue to see signs of improvement.”
The report also flagged ongoing stress in student loans as borrowers there continue to grapple with the aftermath of a return to payments following a pause during the pandemic. The report said that student loans that were more than 90 days past due stood at 10.9% of borrowing in the sector during the third quarter, relative to 10.6% in the second quarter.
OVERALL DEBT LEVELS UP
In the central bank’s report, it said that total third quarter household debt was up by 1.8%, or $334 billion, to $19.1 trillion relative to the second quarter. Mortgage borrowing continued to represent the lion’s share of Americans’ cumulative debt burden, with that sector up by $257 billion to $13.4 trillion amid a rise in new home-related borrowing.
The bank also said that credit card borrowing in the third quarter was up $22 billion from the second quarter, to $1.3 trillion, while auto loans were up $21 billion from the second quarter, to $1.7 trillion.
(Reporting by Michael S. Derby; Editing by Chizu Nomiyama )
