Debt Deflation Setup: Credit Card Defaults And Subprime Auto Delinquencies Rise

Serious mortgage delinquencies are leveling off and remain one recession away from a serious upswing. Credit card and auto loan delinquencies are already on the rise.

Bloomberg reports Subprime Auto Delinquency Is Near Crisis Levels at Non-Bank Lenders.

There’s a growing rift in car debt: Delinquent subprime loans are nearing crisis levels at auto finance companies, while loan performance at banks and credit unions continues to improve, data from the Federal Reserve Bank of New York show.

Almost 9.7 percent of subprime car loans made by non-bank lenders — including private-equity-backed firms catering to car dealers — were more than 90 days past due in the third quarter, the highest rate in more than seven years, according to the New York Fed’s quarterly report on household debt and credit. That’s more than double the 4.4 percent delinquency rate for subprime loans made by traditional banks, a number that’s been falling pretty steadily since the end of the financial crisis.

Auto Finance Delinquencies Soar

To keep auto sales high, lenders have to accept riskier and riskier borrowers. That share is taken by auto finance companies as banks are increasingly fearful of losses.

As is typically the case, Bloomberg did not link to its source for the report. Instead, it linked to a Bloomberg page with useless general information about the Fed.

Here is the NY Fed Auto Delinquency Report.

And once again, here is the New York Fed Household Debt and Credit Report.

Here are some more charts from the household debt report.

30-Day Delinquencies by Loan Type

Report Highlights

Aggregate delinquency rates ticked up slightly in the third quarter of 2017. As of September 30, 4.9% of outstanding debt was in some stage of delinquency. Of the $630 billion of debt that is delinquent, $408 billion is seriously delinquent (at least 90 days late or “severely derogatory”). Flows into delinquency deteriorated for some types of debt. The flow into 90+ delinquent for credit card balances has been increasing notably for one year, and that measure for auto loans has increased, and the flow into 90+ delinquency for auto loan balances has been slowly increasing since 2012.