New York Fed sees signs of trouble in auto lending sector as overall debt level rises From Reuters

©Reuters. FILE PHOTO: Flags fly over the Federal Reserve headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo

By Michael S. Derby

(Reuters) – Overall debt levels in the United States rose modestly during the final three months of last year as several types of debt struggled, especially on the auto front, although overall distress remains below observed levels before the pandemic began. 19 pandemic.

Total household debt increased by $212 billion in the fourth quarter of 2023 to $17.5 trillion, the New York Federal Reserve said Tuesday in its latest quarterly report on household debt and credit.

In a context of rising debt, default rates and the transition to a troubled state have both been higher. The New York Fed said 3.1% of outstanding debt is in some type of default, up a tenth of a percentage point from the third quarter. But overall default rates were 1.6 percentage points lower than in the final quarter of 2019 before the pandemic struck.

The New York Fed report describes credit conditions in an economy that has grown strongly against a backdrop of historically low levels of unemployment and rising incomes. But at the same time, inflation has been high and the U.S. central bank has raised interest rates aggressively and kept short-term borrowing costs high, which in turn has made credit more expensive and difficult to obtain. manage for borrowers.

Some of these issues have manifested themselves in default transition rates for all types of debt, except student loans, which increased at the end of 2023, with 8.5% of credit card loans and the 7.7% of distressed auto loans. Student loan payments are currently in an unusual situation, given what has been a period of forbearance and forgiveness for many borrowers, amid a return to payments for many borrowers.


The New York Fed said in a blog post accompanying the report that default rates rose from very low levels in 2021 amid a rollback of government support efforts. In the case of auto loans, default rates are now higher than pre-pandemic levels “and the deterioration appears to be across the board,” New York Fed researchers wrote.

“Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in previous years, perhaps because buyers during these years faced higher car prices and may have been forced to borrow more, and at higher rates,” they wrote. Rising default rates “are worth monitoring in the months ahead, particularly with the amplified distress exhibited by borrowers in low-income areas.”

The report said auto loan balances overall increased by $12 billion, reaching $1.61 trillion in the fourth quarter.

The report states that for the real estate sector, total new mortgage lending increased by $112 billion to $12.25 trillion in the fourth quarter. Meanwhile, credit card balances increased by $50 billion to $1.13 trillion, while student loan balances increased by $2 billion to $1.6 trillion over the past three months of 2023.

The New York Fed noted that “serious credit card delinquencies have increased across all age groups, particularly with younger borrowers exceeding pre-pandemic levels.” It added that the number of mortgage loans entering distress remained historically low, while noting an increase in lending through home equity lines for the seventh consecutive quarter.

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