Credit card balances fell sharply, marking the steepest decline on record
NEW YORK – The Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt decreased by $34 billion (0.2%) to $14.27 trillion in second quarter of 2020. This marks the first decline since the second quarter of 2014 and is the largest decline since the second quarter of 2013. The Report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data. This latest report reflects consumer credit data as of June 30, 2020. Mortgage balances—the largest component of household debt—rose by $63 billion in the second quarter to $9.78 trillion. Mortgage originations, which include mortgage refinances, reached $846 billion, the highest volume seen since the refinance boom in 2013. Origination credit scores for mortgages increased notably in the second quarter of 2020.
Reflecting the sharp decline in overall consumer spending due to the COVID-19 pandemic and related social distancing orders, credit card balances fell sharply by $76 billion in the second quarter. This was the steepest decline in card balances seen in the history of the data. Auto and student loan balances were roughly flat in the second quarter. In total, non-housing balances (including credit card, auto loan, student loan, and other debts) saw the largest drop in the history of this report, with an $86 billion decline.
Aggregate delinquency rates dropped markedly in the second quarter, reflecting increased uptake of forbearances, which were provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Note that accounts in forbearance are typically marked as current on consumer credit reports. The share of mortgages in early delinquency that transitioned ‘to current’ rose to 61.1%, while there was a decline in the share of mortgages in early delinquency whose status worsened during Q2 2020. Like mortgages, credit cards, student and auto loans also showed lower transition rates into delinquency, likely reflecting the impact of government stimulus programs and various forbearance options for troubled borrowers. Approximately 7.0% of aggregate student debt was 90+ days delinquent or in default in Q2 2020 as compared to 10.8 % in Q1 2020. The sharp decline in student debt delinquency reflects a Department of Education decision to automatically qualify all federal student loans for CARES Act forbearances and report their status as current.
“Protections afforded to American consumers through the CARES Act have prevented large-scale delinquency from appearing on credit reports and damaging future credit access” said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. “However, these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic and the subsequent economic slowdown.”
The New York Fed also issued an accompanying Liberty Street Economics blog post that examined key developments on consumer balance sheets, at a monthly frequency, in the period since the COVID-19 pandemic began.
The Report includes a one-page summary of key takeaways and their supporting data points. Overarching trends from the Report’s summary include:
• Approximately 0.5% of current mortgage balances became delinquent in Q2 2020, as many borrowers enrolled in forbearance programs.
• Approximately 24,000 individuals had a new foreclosure notation added to their credit reports between April 1 and June 30. This is the lowest level seen since the beginning of the report in 1999.
• Outstanding student debt stood at $1.54 trillion in the second quarter, roughly flat with the previous quarter.
• Approximately 7.0% of aggregate student debt was 90+ days delinquent or in default in Q2 2020. The sharp decline in student debt delinquency reflects a Department of Education decision to report current status on loans eligible for CARES forbearances.
Account Closings, Bankruptcy Notations and Credit Inquiries
• The number of credit inquiries within the past six months – an indicator of consumer credit demand – was at 127 million, a small decline from the previous quarter. A change in the treatment of inquiries for utility accounts may have also contributed to the decline.
• Account openings declined by 15 million accounts to 203 million, the largest drop in the history of the series. Account closings ticked up slightly, with 210 million accounts closed within the past 12 months.