Household Debt Trends Improve in Q1 2016, With Bankruptcies Way Down

The Federal Reserve Bank of New York has released its report measuring household debt and credit developments in the first quarter of 2016. Though it is a regional Fed bank issuing the report, the data have a nationwide focus. It turns out that the total levels of household debt balances rose during the first quarter of 2016.

As of March 31, 2016, total household debt was $12.25 trillion. This is a gain of $136 billion, or 1.1%, from the fourth quarter of 2015. One interesting note is that the overall level of household debt is actually still 3.3% below its peak of $12.68 trillion — from the third quarter of 2008!

As you might suspect, mortgage balances make up the largest component of household debt. This debt load increased in the first quarter by $120 billion, up to $8.37 trillion.

Home equity was down very modestly. Home equity lines of credit (HELOC) fell by $2 billion to $485 billion.

Non-housing debt balances rose somewhat in the first quarter. Gains of $7 billion were seen in auto loans and $29 billion in student loans. These two gains were offset by a $21 billion decline in credit card balances. As a reminder, credit card balances often rise throughout the fourth quarter of each year and tend to be paid off in the first quarter of the year — and that first quarter is the one when retailers often wonder why they are even open.

Outstanding student loan balances increased by some $29 billion, which now takes the total student loan debt to $1.26 trillion as of March 31, 2016. On the delinquency count on student loans, the New York Fed showed that 11.0% of aggregate student loan debt was delinquent by 90 days or more (includes student debt in default). That 90 day or more count is actually an improvement from the 11.5% rate seen in the fourth quarter of 2015.

Here is a mini view of origination of new debt:

  • Mortgage originations, which measure new mortgage balances on consumer credit reports (including refinanced mortgages), were down marginally to $389 billion.
  • Auto loan originations were $124 billion, a small decline from the historically high levels seen in 2015.
  • The aggregate credit card limit, up for the 13th consecutive quarter, was up by 2% from the previous quarter.
  • HELOC limits increased by 0.1%, the first uptick in HELOC limits seen since the fourth quarter of 2014.

The distribution of the credit scores of new mortgage borrowers rose, with the median credit score for newly originated mortgages increasing slightly. Some 58% of all new mortgage dollars being loaned were made to those with credit scores over 760.

There was some good news on loan delinquencies. Overall delinquency rates improved to a level of 5.0% of the outstanding debt being recorded in some stage of delinquency.

Of the $613 billion of debt that is delinquent, some $436 billion is seriously delinquent (90 days or over). The Fed showed that some 207,000 consumers had a bankruptcy notation added to their credit reports in the first quarter of 2016, which is 19% lower than a year earlier.