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Storm Clouds on Horizon: Early Stage Delinquencies Up
A review of the 3rd Quarter FDIC Regulatory data reveals a disturbing counter trend to the recent drop in early stage delinquencies. Early Stage is defined here as loans 30-89 days past due. Across almost all loan portfolios, the 3rd Quarter delinquency number is higher than the Q2 figures.
Looking at 1-4 Family First Liens (which make up 23.44% of all Bank Loans) we see what appears to be a "peak" in the 4th Quarter of 2008 with a nice drop in the first half of 2009:
The increase in Q3 from 3.03% to 3.20% represents a worsening of 5.61% in the rate and should raise concerns that perhaps the worst may not be behind us. A review of the 90+ delinquency rate on the same portfolio shows a steady increase:
Banks are stacking up late stage delinquencies in an attempt to manage charge offs. Having managed loan delinquencies I can attest that these two charts come as no surprise. As collection managers fight off late stage delinquencies they have to move more and more collectors to the "back end". Almost without fail, these are the best collectors which can have the biggest impact.
What happens is that as you back fill the early stage collectors with the new hires you end up having poorer effort on beating down that number. It can quickly become a death spiral creating the very problem you are trying to solve. Little discussion has been made of the vast army of collectors that banks must be hiring. As with any large wave of hiring it can be many quarters before they can start to have an impact.
More detail on the 1-4 Family First Liens as well as the other loan portfolios can be found at www.wlmlab.com.
Looking at the top 11 Loan Portfolios, which make up nearly 95% of all bank loans, we can see that the 3rd Quarter increase is almost universal:
The top 7 loan portfolios representing 90.30% of all loans on the books of U.S. banks had an increase in their Early Stage delinquency rate. This is a disturbing reversal of recent performance and could portend an increase in charge offs in early 2010.
The table below details the top bank lenders Early Stage delinquency rates for 1-4 Family First Liens:
Citigroup, Inc. had both the biggest deterioration in their Early Stage delinquency rate as well as the highest rate of the Top 5. To learn more about Citigroup's performance click here.
Looking at Early Stage delinquency rates for Commercial RE we see a mixed bag among the Top 5:
Wells Fargo & Company jumped from 1.24% to 1.93% - an alarming 55.65% increase in the rate. Bank of America had a 15.71% drop and has the lowest rate of any of the Top 5.
The Early Stage delinquencies are much like the Canary in the Coal Mine. When those numbers decline then we can anticipate lower bank charge offs. The recent reversal in the Top 7 loan portfolios lead me to believe that we have much more bad news on the way.
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All those fuckers are bankrupt. The only reason they stay in business is because they keep giving them our money. The Federal Reserve is a Den of Thieves.
The drop in early 2009 first deliquencies is likely due to banks "holding back" when the government and Obama asked them to hold off until a "rescue plan" was in place.
This just delays the inevitable.
thanks mate, great analysis
As I have said many times--although no one responded to it--we are facing a collapse of the supply chain, and I said to look for it in agriculture as well as in more obvious places such as shipping. No one wants to discuss the reason for it, but it is liquidation: it is government reducing its role in the society. Or, call it looting by the oligopoly. Anyway, it's Andrew Mellon's "liquidate liquidate liquidate" pure and simple.
bmoreland...your insights are excellent and your articles a must read for those that following the banking sector.
thank you very much for sharing your experiences and knowledge. Please continue to do so!
I'd bet the early stage resi. delinquency jump reflects a surge in underwater homeowners/mortgagors beginning to pursue 'strategic default'. Folks under financial strain such as laid-off, way underwater with little perceived change of every having any home equity, who may not want to live in a 'bail-out nation', but figure if they have no choice, since they'll be paying for it for decades, they might as well get their 'bailout' while they can. Moral hazard becomes moral fever...
"Little discussion has been made of the vast army of collectors that banks must be hiring."
Real job growth, there is some upside to all of this :)
Bonz
r u fucking serious with that picture?
u fucking asswipe
kitty-loving jackass
+1000
Great analysis. Thanks for sharing.
Great analysis. Thanks for sharing.
Nice job. It’s analysis like this that brings me back to this site, and why I’ve abandoned most of the old guard media outlets.
Look at early stage delinquencies on farm loans in the above chart. Up 57.58% between Q2 and Q3.
Heck, between the disaster scene harvests this season, and the fact that a whole lot of farms my not be here next year, even with a stable dollar we're staring at significant food price inflation.
Combine the two, though, and this winter would be a good time to read some gardening books.
See Eric DeCarbonnel's excellent coverage of the food problem here:
Stage 1 Of The Dollar's Collapse: Food/Gold Shortages Reach Breaking Point
http://www.marketskeptics.com/2009/11/stage-1-of-dollas-collapse-pressur...
Wait untill oil gets to above $100 )with speed of the dollar decline,we might see that sooner than later). And then we might be back to square one(summer of 2008 revisited).
Thanks, very clear and complete. Writers like you make it a joy to spend time at ZH.
Real estate asset deflation and lingering joblessness will make these figures look like they came from " the good old days " by this time next year.
Banks are running out of fingers to plug all the holes in the credit dike.
Nice job, bmore.
"...drop off the key Lee and git yo self freeeeee."
Blame it on seasonality...oh wait Q4 is a nasty season, guess we wait till Q1 or rates sub 4%
Do you think the MBS that the FED has purchased are reflected in these numbers?
The problem is that bank charge offs and bad news don't count for squat anymore. This is the 'new economy' where the only participants are the government, the Federal Reserve and Central Banks (plus SWFs and hedge funds, etc). 'They' seek continually to repress any sort of news that might reflect poorly on the economy while 'they' manipulate the markets ever higher.
It's ALL BS now... There is no market or economy...
Ancient_Warrior
That is exactly right. We NEVER hear the truth from the MSM, our government or the financial press. There only directive is to keep the masses calm with their continued LIES and manipulation.
Unfortunately, people are waking up to reality, and it is about to get ugly.