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Federal Reserve: Household Delinquencies Down Last Quarter

According to a report released by the Federal Reserve Bank of New York, American household debt delinquency rates declined last quarter—for the first time in about four years. Here’s a look at some of the specifics in the report and what they might mean about the economy.

  • As of June 30, 2010, 11.4 percent of U.S. household debts were considered delinquent (which generally means 30 days or more past due).
  • On March 31, 2010, 11.9 percent of such debts were delinquent.
  • On June 30, 2009, 11.2 percent were delinquent.

According to the report, delinquency rates had increased steadily since the first quarter of 2006, when they hovered at slightly less than five percent of household debt. It seems that, once the housing bubble burst and the stock market began to tank, household delinquency shot up.

Sources suggest that the decrease in delinquencies is the result of two major moves by consumers:

  • Paying down existing debt: As part of the tight economy (including limited access to loans and reduction of job availability), many consumers are focusing on eliminating debts they currently hold. Various studies have suggested that we are, as a nation, taking on less consumer debt now than we did during boom years (likely both because of tighter lending standards and a desire to prepare for potential economic shocks).
  • Filing for personal bankruptcy: Whether consumers opt to file under Chapter 13 or Chapter 7, part of a bankruptcy filing generally includes a discharge of some unsecured debt. Once those debts are discharged, consumers are legally excused from paying them, and they’re essentially removed from the total picture of household debt.

Perhaps unsurprisingly, the Fed’s report indicates that both the total household debt and the percentage of that total occupied by mortgage debt have increased significantly since the beginning of 2004. Data from the last two years suggest that both totals are beginning to inch downward, but are still significantly higher than they were before the housing boom began.

Implications for the Economy

So what might these numbers mean for the larger economy? It may be too early to say. As mortgage debt has risen (both in total and as a percentage of all debt), so have mortgage delinquencies, showing a serious upward leap began in 2006 and peaked in the first quarter of 2009.

But it’s still too soon to say whether that 2009 high will remain the top of the graph—in the quarters since then, the total amount of mortgage debt has fluctuated enough to leave doubt about whether it’s on a steady decline.

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