Confirming some economists' fears and suspicions, two key indicators of consumer credit delinquencies are up significantly.
The American Bankers Association reported Thursday that delinquency rates rose in the fourth quarter on all types of consumer loans. Credit cards matched their worst level of the past 10 years, with 3.34% of loan accounts at least 30 days past due.
Also Thursday, the Mortgage Bankers Association of America said 4.25% of home loans were past due at the end of last year. That was only one basis point higher than in the previous quarter, but the rate has gone up three consecutive quarters, and experts expect the trend to continue through several more periods.
These results, which tend to foreshadow loan losses, put a damper on the record banking industry profit report for 1995, issued by the Federal Deposit Insurance Corp. (See page 2.)
Despite the downward drift in credit quality, industry observers said they see no reason for panic. They pointed out that delinquencies are climbing from a sustained low in 1994 and 1995.
"We're returning to normal levels," said Collin McKenny, president of card services at Star Banc Corp., Cincinnati. "It absolutely bottomed out over those 18 months, and that clearly wasn't sustainable."
Norwest Corp. chief economist Sung Won Sohn said the greatest danger will come if the economy slides into recession, which would produce "a record high credit card delinquency rate (and) a significant jump in mortgage and auto loan delinquency."
The ABA's seasonally adjusted, composite delinquency index, which covers eight types of closed-end loans, climbed by 14 basis points in the quarter and by 40 since yearend 1994, to 2.12% at Dec. 31. With more than 2% of these loans past due for the first time in two and a half years, "there has to be some serious consideration about underwriting standards," said ABA chief economist James Chessen.
As with the composite statistic, latenesses in the separate bank card category rose for the fifth consecutive quarter. They last hit 3.34% of accounts in first quarter of 1991, at the end of a recession.
Card delinquencies rose just four basis points from the third quarter, but 41 basis points from the 2.93% at yearend 1994. The percentage of dollars delinquent on card accounts soared over those 12 months to 4.45% from 3.20%.
Moody's Investors Service Inc., which tracks rates of credit card delinquencies in securitized portfolios, is expected to report today that 4.44% of the receivables in December were at least a month past due, up from 3.74% a year earlier.
"I think senior-level management is now intimately involved in evaluating the credit card programs," Mr. Chessen said, resulting in fewer direct-mail offers.
Despite severe weather in January, consumers continued to use credit cards heavily. Citing Federal Reserve figures, the ABA said consumer installment credit expanded at a 12% seasonally adjusted annual rate. Total consumer installment credit rose 11.6% last year, to $1.025 trillion, and the loans equaled 19% of disposable income.
With delinquency increases in all the closed-end loan types and in all but five states, "the whole, general economy may be weaker than what some of the latest macro numbers may have suggested," Mr. Chessen said. "I worry that as the economy slows, the delinquencies will rise, and that's a concern to borrowers and lenders."
In the fourth quarter, mortgage delinquencies rose only in the least serious, 30-day overdue category, by 0.09 points to 2.95%. Sixty-day delinquencies were unchanged at 0.64%; 90-day or more fell by 0.08, to 0.66%.
But Sanford C. Bernstein & Co. analyst Jonathan Gray said the Mortgage Bankers Association numbers understate the deterioration in credit quality.