Since the end of the recession a few years ago, and the wave of foreclosures and delinquencies that followed, many consumers have cut back on their loan balances to avoid finding themselves in a similar situation, overburdened with debt. For the most part, this trend has been reflected in recent foreclosure data, with the number of defaults reportedly falling. However, Standard and Poor’s/Experian Consumer Credit Default Indices found that default rates were actually on the rise at the end of 2012, with fears that this may continue into this year.
The report, which was released this week, looked at the default rates of bank cards, auto loans, and first and second mortgages in five major U.S. cities. The report found increases in the composite in all five cities from both 1.55 percent in October to 1.72 in December.
“Fourth quarter consumer default rates reversed some of the recent declines and pushed the composite default rate above its level of last May,” David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices, said in a statement.
“The principal culprits were first and second mortgages. Default rates for auto loans were roughly stable over the year and default rates for bank cards continued to drop. All loan types remain below their respective levels a year ago.”
Reversing the default rates
The increase in mortgage default rates seems to be the most dangerous, with the levels of both first and second mortgages higher than the others. For mortgage originators, using credit risk software, however, can keep default rates from hurting them financially. As banks begin to soften their lending rules, using software to make accurate decisions regarding qualified borrowers can allow a lender to both increase profits and loans without falling into the overall industry pattern.