Auto, home equity are soft spots in consumer lending

Consumer delinquencies on home equity loans and car loans arranged through a dealer are trending up while past-due rates on credit cards are declining, according to a bank industry report issued Tuesday.

In its quarterly report that tracks consumer delinquency trends, the American Bankers Association said that 30-day past-due rates ticked up in eight of 11 categories in the second quarter when compared with the first quarter, but stressed that delinquencies remain well below historic norms.

James Chessen, the ABA’s chief economist, said in a press release that he expects delinquency rates to more or less hover around their current levels.

“Despite some fluctuations, particularly in the auto and home-related sectors, the picture for delinquencies is generally positive,” Chessen said. “A strong job market and rising wages have provided a solid base for consumers that has kept delinquencies near historically low levels.”

Household delinquencies have begun to steadily tick upward in the past year or so, despite a strong economy and low unemployment. Lenders tightened credit underwriting standards during last decade's Great Recession, but in the years since, they’ve gradually loosened standards to appeal to a broader range of borrowers.

Still, some banks have begun to rethink their exposure to indirect auto lending in particular, which saw the greatest rise in delinquencies in the ABA’s latest report.

The percentage of indirect auto loans that were at least 30 days late rose 13 basis points from the prior quarter and 30 basis points year over year, to 2.23% of all loans. Delinquencies on auto loans hit a seven-year high in the fourth quarter of last year and have remained above the pre-recession average of 2.03% since then.

Delinquencies also rose in two out of three property-related loan categories, the ABA said. Home equity loan delinquencies continued to rise, climbing 7 basis points from the prior quarter and 32 basis points year over year, to 2.75% of all loans. Past-due rates on improvement loans also rose 10 basis points from the prior quarter to 1.29%, though the ABA said this was still below the pre-recession average of 1.65%. Delinquencies on home equity lines of credit fell 4 basis points to 1.06%.

Delinquencies on bank-issued credit cards fell for the second consecutive quarter, reversing an earlier rise that happened late in 2018. The percentage of credit card accounts that were at least 30 days late declined 6 basis points to 2.98%.