First mortgage defaults increase slightly

The change comes along with softness in real disposable personal income

First mortgage defaults increase slightly
The rate of first mortgage defaults increased in October from the previous month along with defaults for other credit products, according to the Consumer Credit Default Indices released by S&P Dow Jones Indices and Experian.

The first mortgage default rate increased one basis point from September to 0.67%. In October 2016, first mortgages had a default rate of 0.70%. The default rate for second mortgage was 0.79% in October, up from 0.53% in September and 0.58% in October last year. These compare to composite credit default rate of 0.90%, up from 0.88% a month ago and 0.87% a year ago.

"For the first time since January 2017, the default rates for autos, bank cards, and mortgages all rose together," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "The economy is doing well, with 3% GDP growth in the third quarter, stable inflation, low unemployment, and retail sales growing at a 4% annual rate. Auto sales jumped in September after drifting lower for most of the summer and then pulled back slightly in October. The data does not suggest any unusual financial stress facing consumers which would explain the small, but across the board, increases in the default rates."

Blitzer also said that consumer sentiment and expectations continue to be positive, with gains recorded in spending for auto sales, retail, and discretionary items. He noted that total consumer credit outstanding is growing at a 6.6% annual rate, while revolving credit outstanding is rising at a 7.7% annual rate. Despite these figures, however, Blitzer said that recent softness in real disposable personal income may explain the default rates. Defaults may fill the gap in case of widening spread between income and spending, he said.

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