Late loan payments fall, scene improving

by Russ Wiles The Arizona Republic July 7, 2010 04:52 PM

Consumer-loan delinquencies declined broadly from January through March, marking the third straight quarter of improvement. But some credit watchers wonder whether the trend is for real.

The American Bankers Association, which released the report, called the latest numbers a sign that more people nationally are getting their hands around debt problems.

The association reported that delinquencies for eight consumer-loan categories averaged 2.98 percent of all accounts in the first quarter. By contrast, 3.19 percent of all accounts were 30 days or more past due in 2009's fourth quarter.

Credit-card delinquencies fell noticeably to 3.88 percent of all accounts from 4.39 percent. That pushed the new credit-card figure below its 15-year delinquency average of 3.93 percent.

The association's chief economist, James Chessen, said the improvements reflect efforts by consumers to shore up their finances.

"It's clear that consumer balance sheets are improving," he said in a statement. "People are borrowing less, saving more and building wealth."

Tanya Wheeless, president and CEO of the Arizona Bankers Association, said she has noticed a similar trend here.

"As I talk to local bankers on housing and other types of loans, we are seeing a bottoming out, some improvements," she said.

But others aren't sure whether the improvements reflect consumers managing their money better, or banks taking the initiative by closing accounts and slashing lines of credit.

"Debts are dropping, but are institutions closing accounts, or are consumers doing it?" asked Adam Levin, chairman of Credit.com in San Francisco and Scottsdale-based IdentityTheft 911.com.

Although Levin said that many people are more conscious about paring debts, avoiding credit-related fees and spending less, he is not convinced most Americans have yet embraced this "new frugality."

Ericka Young, a financial coach at Tailor-Made Budgets in Gilbert, said she has noticed some people keeping current on credit cards and other relatively small loans while falling behind on their mortgages. This tendency, she said, partly reflects higher and rising interest rates on credit cards. Plus, some homeowners are resigned to leaving their properties because of declining values.

Still, the American Bankers Association's delinquency numbers are in the right direction, and the lower problems on home-equity loans and lines of credit point to firming in housing prices.

"This is the first inkling that stability is taking hold in the housing market," Chessen said, "but the pace of recovery will still be long and drawn out."



Late loan payments fall, scene improving