Household Debt Hits $12.4 Trillion As Subprime Loan Delinquencies Hit Highest In 6 Years: NY Fed

Tyler Durden's picture

The latest just released Quarterly Report on Household Debt and Credit  from the New York Fed showed a small increase in overall debt in the third quarter of 2016, prompted by gains in non-housing debt, and new all time highs in student loans which hit $1.279 trillion, rising $20 billion in the quarter.11.0% of aggregate student loan debt was 90+ days delinquent or in default at the end of 2016 Q3.

Total household debt rose $63 billion in the quarter to $12.35 trillion, driven by a $32 billion increase in auto loans, which also hit a record high of $1.14 trillion. 3.6% of auto loans were 90 or more days delinquent.

Mortgage balances continued to grow at a sluggish pace since the recession while auto loan balances are growing steadily, and hit a new all time high of $1.14 trillion.

What was most troubling, however, is that delinquencies for auto loans increased in the third quarter, and new subprime auto loan delinquencies have not hit the highest level in 6 years.

The rise in auto loans, a topic closely followed here, has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies. Disaggregating delinquency rates by credit score reveals signs of distress for loans issued to subprime borrowers—those with a credit score under 620.

To address the troubling surge in auto loan delinquencies, the NY Fed Liberty Street Economics blog posted an analysis of the latest developments in the sector. This is what it found.

LSE_Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

Subprime Auto Debt Grows Despite Rising Delinquencies

The rise in auto loans has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies. Disaggregating delinquency rates by credit score reveals signs of distress for loans issued to subprime borrowers—those with a credit score under 620. In this post we take a deeper dive into the observed growth in auto loan originations and delinquencies. This analysis and our Quarterly Report are based on the New York Fed’s Consumer Credit Panel, a data set drawn from Equifax credit reports.

Originations of auto loans have continued at a brisk pace over the past few years, with 2016 shaping up to be the strongest of any year in our data, which begin in 1999. The chart below shows total auto loan originations broken out by credit score. The dollar volume of originations has been high for all groups of borrowers this year, with the quarterly levels of originations only just shy of the highs reached in 2005. The overall composition of both originations and outstanding balances has been stable.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

As we noted in an earlier blog post, one feature of our data set is that it enables us to infer whether auto loans were made by a bank or credit union, or by an auto finance company. The latter are typically made through a car manufacturer or dealer using Equifax’s lender classification. Although it remains true that banks and credit unions comprise about half of the overall outstanding balance of newly originated loans, the vast majority of subprime loans are originated by auto finance companies. The chart below disaggregates the $1.135 trillion of outstanding auto loans by credit score and lender type, and we see that 75 percent of the outstanding subprime loans were originated by finance companies.Auto

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

In the chart below, auto loan balances broken out by credit score reveal that balances associated with the most creditworthy borrowers—those with a score above 760 (in gray below)—have steadily increased, even through the Great Recession. Meanwhile, the balances of the subprime borrowers (in light blue below), contracted sharply during the recession and then began growing in 2011, surpassing their pre-recession peak in 2015.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

Delinquency Rates

Auto loan delinquency data, reported in our Quarterly Report, show that the overall ninety-plus day delinquency rate for auto loans increased only slightly in 2016 through the end of September to 3.6 percent. But the relatively stable delinquency rate masks diverging performance trends across the two types of lenders. Specifically, a worsening performance among auto loans issued by auto finance companies is masked by improvements in the delinquency rates of auto loans issued by banks and credit unions. The ninety-plus day delinquency rate for auto finance company loans worsened by a full percentage point over the past four quarters, while delinquency rates for bank and credit union auto loans have improved slightly. An even sharper divergence appears in the new flow into delinquency for loans broken out by the borrower’s credit score at origination, shown in the chart below. The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

It’s worth noting that the majority of auto loans are still performing well—it’s the subprime loans that heavily influence the delinquency rates. Consequently, auto finance companies that specialize in subprime lending, as well as some banks with higher subprime exposure are likely to have experienced declining performance in their auto loan portfolios.

Conclusion

The data suggest some notable deterioration in the performance of subprime auto loans. This translates into a large number of households, with roughly six million individuals at least ninety days late on their auto loan payments. Even though the balances of subprime loans are somewhat smaller on average, the increased level of distress associated with subprime loan delinquencies is of significant concern, and likely to have ongoing consequences for affected households.

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bada boom's picture

Happy times are here again!

BullyBearish's picture

Cool...can I now use my car as an ATM?

KnuckleDragger-X's picture

Take the balance weights off the wheels and use it as a vibrator....

The Saint's picture
The Saint (not verified) KnuckleDragger-X Nov 30, 2016 12:43 PM

Yes, household debt is up.  But what about household assets?  Did they climb faster, slower or decline?

 

CorporateCongress's picture

Faster in aggregate, but basically means just for the 1%. The average joe is fucked of course

SafelyGraze's picture

dear households:

just go ahead and default already.

take the public assistance.

housing. food. transportation. medical. 

just do it.

default.

if an employer offers you a "salary," say thanks-but-no-thanks.

give it to someone from out-of-country.

if a university offers you or your kid a "scholarship," politely decline.

you and yours can get lectures off of youtube.

just walk away.

 

nra2708's picture

Most household assets are 'immovable' are they not?

The real question (and always has been) is the ability to service debt.

If wages are up fine, otherwise the inevitable 'choke point' will occur down the line.

 

Antifaschistische's picture

I have an idea....STOP LETTING CAR BUYERS FINANCE THE TAX on their new ride. That will fix things very fast

True Blue's picture

Judging by student loans, auto loans and credit card debt; household 'assets' climbed, but they are deprecatory and a large portion of 'asset value' was chopped in half the moment it left the dealer's lot. 

Since the student loan category wasn't subdivided into STEM and non-STEM majors, it is impossible to define the 'asset' of 'education' -same with credit card debt; we don't know how many people bought Gold with their (((Master))) card. Anecdotally, I'd say those two categories were also highly deprecatory; and judging by the default/delinquency rates -they are.

American Psycho's picture

Mrs. American Pyscho wants to get rid of our 96 Nissian aka, the Golden Nugget.  Looks like that time is getting closer. 

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) American Psycho Nov 30, 2016 2:53 PM

It is 10 years old. That is when I sold and bought again, too.

Chupacabra-322's picture

@ American,

My daily is a 2007 Mazda 3S Touring Model with what was back in the day, Mazda's 2.3 liter engine. It has 86,000 Miles. Tranny has 46,000 miles.

I leased it for 3 years & financed for 5. Had the car since new. I refuse to finance & give the Scum Fuck Criminal Ponzi Central Bankers a dime more of my money.

Mazda's cherry. I'm refurbishing the complete suspension This week & slowly restoring my paid off car back to showroom condition with minimal investment.

Point is, I refuse to comply / participate in the Global Criminal Banking System of Debt, Bondage & Enslavemnt. Peaceful Non Compliance / Non Partcipation from their Global Centrailzed Markets.

Dane Bramage's picture

If it's paid off you can get another loan ("refinance") on it.  Then use that to buy gold!  ;-)

bada boom's picture

GS is up 'huge' today.  Anyone know why? /s

Ghost of Porky's picture

Blankfein is walking around with a tiny little boner all day.

small axe's picture

crony capitalism is a growth sector

JedClampIt's picture

Cause Blankfein's hedge paid off perfectly. Buy a Clinton or put his Munchkin in the WH. Either way it's money in the bank.

Kirk2NCC1701's picture

Because Trump: "Grope & Change"

You get groped, then get some change.

Son of Loki's picture

"It's all Donald's fault!

He should not have called someone fat 18 years ago!!"

~ Jill Stein, Green Partee

NoDebt's picture

This party is NEVER going to end.  Eat, drink and be merry for tomorrow.... we do it all over again.  Nobody goes to jail and nobody ever gets a hangover.

 

Philo Beddoe's picture

Change your username to MoreDebt and have a big fucking syringe as your profile pic. 

We will know who you are. 

Just my 2 cents. 

 

Philo Beddoe's picture

I am getting rusty. Tough room. 

Son of Loki's picture

I'm kinda excited about all this fundmentally changed America since even McDonald's is taking action to Obamanomics and coming out this Chirstmas with the 50 cent, "McDebt sandwich."

 

yogibear's picture

Yes, print and be merry.
Unlimited financial heroin highs without consequences.

Next goal of debt $1,000 trillion.

CorporateCongress's picture

Perhaps a few rate hikes can get the show starting.

Rainman's picture

wtf ...so this is why everybody in the trailer park drives a new Escalade !

Kirk2NCC1701's picture

Wiggers gotta have a Cadillac or 4WD truck, baby!

pliny the longer's picture

u just made me spit my drink out on my keyboard.  i literally have a buddy that just upped on a new 'lac escalade.  he does ok but is punching about 3 wt classes up on this purchase.  i call him F'n wigger every chance i get now.  then i say 'just kidding, we've been friends for a long time, but you are a dumbass'. 

ThisUsernameFollowsTheRules's picture

I can't wait to get a killer deal on a 911 when this shit finally pops

Kirk2NCC1701's picture

You can't drive with a broken back, but at least you can polish the fenders.

Queue song, Billy.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) ThisUsernameFollowsTheRules Nov 30, 2016 2:56 PM

With cash you could get a sweet deal now.

nakki's picture

Seems like a perfect time to normalize rates, and when I say normalize I mean in the Japanese way. 

You're gonna need a bigger copter.

Bam_Man's picture

I'm sure higher interest rates will help.

silverer's picture

Higher interest rates WOULD help, but you have to have the concomitant productivity. That's the problem: The Fed and the bankers constructed a fake paper economy. Productivity was flagged to be decreasing YEARS AGO, and the Federal government at that point should have absolutely stopped all new spending, but they did NOT. They borrowed TRILLIONS more with no real offset of productivity, so the debt cannot be paid. We cannot "grow" out of this mess. The debt has been piled way too deep. If we are lucky, Trump can only hope to extend the Ponzi a few more years.

2ndamendment's picture

You know what would go well with this McMansion I can't afford? A giant SUV I can't afford on a 120 month payment plan!  

GunnerySgtHartman's picture

50-year mortgage and 10-year car loan - what could possibly go wrong with that???

 

/s

asteroids's picture

If you are over 80 years old, nothing that I can see :-)

innertrader's picture

NOTHING, so why not do a 100 yr and a 20 yr?

yogibear's picture

Let's double it again because that's what Wall Street and the Federal Reserve want. Next goal $25 trillion. To the banksters debt is money. Why not go for $100 trillion in 4 years. Party on!!

Son of Loki's picture

That is HIllary's goal to forgive all the debt an dissue another $11 trillion for overseas wars. That's why the Green Partee and Hillary are fighting so fiercely to get a hold of that Oval Orifice.

oncemore's picture

miracles happen.

this goes on and on since 30 years.

buzzsaw99's picture

This translates into a large number of households, with roughly six million individuals at least ninety days late on their auto loan payments...

six frikken million? holy crap! it doesn't look so bad when you say the delinquency rate is 2% but when you say six million jebus christ on a cracker.

cowdiddly's picture

eh a million here, a million there and pretty soon your talking about some cronic deadbeats

nothing a lil non GAAP lipstick won't fix.

buzzsaw99's picture

is janet planning to open up a repo lot at some of those defunct malls she owns?

cowdiddly's picture

Weel if my ole Cummins didn't purr so good I might think of getting an upgrade. Im am getting a little miffed at my coffee cups disappering through the cracks in the dash.

Nah, Ill just get a go cup to go between me legs. The ole girls never left me stranded.

buzzsaw99's picture

+1. i have never bought a vehicle before my current vehicle crapped out. even a new car could be a lemon and i get zero marginal utility from new car smell and higher insurance premiums.

KuriousKat's picture

i wonder what they are driving? most of these new cars have remote shutoffs..with accelerated loan clauses these go to straight repo..wtf..what is the actual repo rate?

ahh..

http://www.zerohedge.com/news/2014-08-20/car-repos-soar-70-auto-subprime...