US deliquency rate at highest level in 6 years

More Americans fall behind on debt payments

Credit-card delinquencies decline in first quarter

By Rex Nutting, MarketWatch

Last Update: 10:06 AM ET Jul 3, 2007

Delinquencies of all types of consumer loans rose to 2.42% in the first quarter from 2.23% in the fourth quarter, led by higher rates of late payments for real-estate loans. It's the highest delinquency rate for the bankers' composite delinquency index since the second quarter of 2001.

Delinquencies of credit-card debts fell to 4.41% of all accounts from 4.56% in the fourth quarter, however. Accounts are considered delinquent if payments are 30 days overdue. Delinquencies on home-equity loans rose to 2.15% from 1.92%.

Delinquencies on property-improvement loans rose to 1.61% from 1.29%. Mobile-home loans saw their rate of delinquencies rise to 2.94% from 2.82%. Delinquencies on direct auto loans fell to 1.68% from 1.85%, while indirect auto-loan delinquencies rose to 2.73% from 2.57%. Delinquencies on personal loans rose to 2.08% from 1.91%.

"The good news is that credit-card delinquencies fell during the first quarter of 2007," said James Chessen, the ABA's chief economist. "The improvement in credit card late payments is somewhat remarkable, given that the economy was not operating on all cylinders." Slow expansion in employment, falling home prices and weak economic growth worsened consumers' financial position, Chessen said.

The Federal Reserve has reported that the consumers' debt-service obligations fell in the first quarter. Debt service as a percentage of disposable income dropped to 14.3% from 14.5%, while total financial obligations as a percentage of disposable income fell to 19.2% from 19.4%.

An interesting point to note is that while delinquencies are on the rise the major banks have not yet increased their loan loss provisions. Are they in denial or are their profits so big and their exposures so small they need not worry? I guess we'll find out as we move further into the worst part of the credit cycle, stay tuned.