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Consumer Credit Conditions, June 2016

The Consumer Credit Conditions update for the Eleventh Federal Reserve District presents maps and charts showing consumer loan balances and delinquencies by county, state, loan type and risk score. The data are drawn from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax. While the Eleventh District includes Texas, northern Louisiana and southern New Mexico, portions of the update present data for all of Louisiana and New Mexico.

Overview

At an aggregate amount of $842.5 billion, total consumer debt in the Eleventh Federal Reserve District [1] increased 6.8 percent from June 2015 to June 2016. This is a jump from last year’s rise of 5.7 percent. However, the number of people with a credit report rose just 2 percent compared with last year’s increase of almost 3 percent. This means that growth in borrowing is responsible for the majority of this climb.

Within this aggregate increase, consumer finance loans—personal loans, including those provided by alternative financial services—rose the most, up 13.9 percent from June 2015. Auto loans were a close second, climbing 10.2 percent in this time period. Home equity installment loans—lump-sum loans borrowed against the equity in one’s house—were the only decrease, down 1.6 percent. Bankcard debt, or typical credit card accounts, grew 7 percent, far outpacing the national rate of 3.8 percent. The growth rate in the district was also higher for student loans (7.5 percent versus 6 percent). Mortgages increased 6 percent compared with just 3.4 percent last year.

Though their aggregate balance increased, the share of mortgages in the total debt portfolio continued its downward trend, dropping to 58.4 percent from 58.8 percent and 59.8 percent in 2015 and 2014, respectively. Still, it represents the majority of debt for consumers in the Eleventh District.

Texas is the only state in the nation to have home equity loan regulations, capping the amount borrowed at 80 percent of the market value of the home; 20 percent equity must always remain in the home. This helps keep the debt balances low for the state. In fact, researchers suggest these regulations helped keep Texas’ serious delinquency rates for subprime loans—those made to consumers with credit scores typically below 620—10 percentage points lower than the nation’s during the Great Recession.[2]

Delinquencies: A Tale of Two Loans

With regard to delinquencies, the rates of late or outstanding payments dropped for many loans. For all loans in the district, delinquencies decreased from 6.03 percent in 2015 to 5.65 percent in 2016. Student loan delinquencies dropped nearly 2 percentage points in Texas and the district, and serious delinquencies also declined 1.66 and 1.77 percentage points, respectively. Mortgage delinquencies fell by over 1 percentage point across the country and about 0.43 percentage points in Texas. This is the lowest that mortgage delinquencies have been since June 2006.

But the downward trend is not true for every loan. Increasing rates of loan volume growth coupled with increasing delinquencies can be a cause of concern for the economy. In the national and Texas subprime markets, this is true for two loans: auto and retail. Yet, concerns about the long-term impact of these trends differ for the two loans.

Retail loans, which include department store, electronic and home furnishing loans, have historically had higher rates of delinquencies than others such as mortgages, bankcards, home equity or auto. Much of this is likely due to the relative ease of getting approved and the higher interest rates charged.[3] In the subprime market, at least a third of these loans are past due. And although aggregate retail debt has increased for all credit scores in the past five years, since 2014, the rate of growth in the subprime market has been about triple that of the prime market. Much of this is likely demand-driven—the increase is correlated to  a growth in retail sales—and related to the accessibility of retail credit over bankcard credit for those with low credit scores. However, the total volume of retail loans as well as their share in the total debt portfolio is small. In Texas, for example, retail loans represent 1 percent of the per capita loan portfolio, while in the United States, they represent just 0.7 percent. Therefore, the impact on the aggregate portfolio is minimized, despite the higher rates of delinquencies.

In contrast, auto loans, which have received a lot of attention in the past year, represent a substantial and growing share of the total loan portfolio for consumers both in the Eleventh District and the United States. Across the nation, auto debt surpassed $1 trillion dollars in 2016. The volume of auto debt per capita has grown by more than 18 percent in Texas since 2014, now representing more than 16 percent of an average consumer’s debt portfolio. This is the highest share of any loan type, with the exception of mortgages. In fact, when one excludes mortgages (which constitute the majority of portfolios in Texas), auto loans now represent about 40 percent of the remaining loan balance per capita. By contrast, retail loans represent 2 percent.

Rates of delinquencies in the subprime market have risen in the past few quarters. In fact, the share of deep subprime loans that are seriously delinquent is at its highest since 2012, at more than 20 percent (Chart 1). Furthermore, the overall subprime balance in Texas has grown 28.5 percent in two years. This growth rate is the eighth highest in the nation.

Subprime Auto Debt Serious Deliquencies on the Rise in Texas

With rates of serious delinquencies for all retail borrowers reaching nearly 10 percent, retail loans can have a substantial negative impact on the financial well-being of an affected borrower. However, due to the low volume, the size of the impact on borrowers as well as the economic health of the state and country is minimized. In contrast, with auto loans representing 16 percent of the total outstanding debt per capita in Texas—much higher than the nation’s 9 percent—there are concerns about the size and length of consequences for borrowers as well as the overall economy. This is why auto loans have garnered growing attention from economists and the media over the past year. As delinquencies and defaults rise within the subprime market, with volume also increasing, auto finance companies, lenders, borrowers and local economies could be affected. The New York Times notes that in the case of an uptick in car repossessions, the economy could take a “stinging hit.”[4]

Although this is concerning, this news should not sound the alarm for a repeat of the mortgage crisis: trillions of dollars of mortgage credit were inextricably linked to investments and the economy at large prior to the Great Recession. Auto debt, however, is far smaller and less entangled in the overall financial system: mortgages are securitized at much higher rates, while the terms of auto loans are far shorter, and repossessions are far easier.

Notes

  1. The Eleventh Federal Reserve District consists of Texas, northern Louisiana and southern New Mexico. See map of counties here: www.dallasfed.org/fed/counties.
  2. “Did Home Equity Restrictions Help Keep Texas Mortgages from Going Underwater?“ by Anil Kumar and Edward C. Skelton, Federal Reserve Bank of Dallas Southwest Economy, Third Quarter 2013, www.dallasfed.org/research/swe.
  3. “Think at Least Twice Before Opening a Store Credit Card,” by Theresa Agovino, CBS MoneyWatch, Nov. 17, 2016, and “5 Things You Need to Know About Store Credit Cards,” by Geoff Williams, U.S. News & World Report, Sept. 20, 2016.
  4. “As Auto Lending Rises, So Do Delinquencies,” by Michael Corkery, NYTimes.com, Nov. 30, 2016.

Past Reports

Charts of Consumer Credit Conditions in the Eleventh Federal Reserve District

PDF Version

Charts of Consumer Credit Conditions

DPDTexas Consumer Loan Delinquencies by Delinquency StatusPercent

Seriously Delinquent Loans in Texas by Risk ScorePercent

MexicoSeriously Delinquent Loans by StatePercent

Seriously Delinquent Loans in Texas by Loan Type

Composition of Debt Balance Per Capita by State, June 2015 and 2016

Consumer Loan Balances in Eleventh District and U.S., June 2016 and 2015

PDF Version

2016
All Consumer Loans
  Total balance (millions of dollars)
Louisiana 23,501  
New Mexico 15,382  
Texas 803,618  
11th District 842,501  
U.S. 12,112,384  
2015
All Consumer Loans
  Total balance (millions of dollars)
Louisiana 22,758  
New Mexico 14,935  
Texas 751,208  
11th District 788,900  
U.S. 11,679,555  
2016
Auto Loans
  Total balance (millions of dollars)
Louisiana 4,187  
New Mexico 2,838  
Texas 129,646  
11th District 136,671  
U.S. 1,092,720  
2015
Auto Loans
  Total balance (millions of dollars)
Louisiana 3,845  
New Mexico 2,585  
Texas 117,645  
11th District 124,074  
U.S. 993,189  
2016
Bankcard Loans
  Total balance (millions of dollars)
Louisiana 1,513  
New Mexico 1,099  
Texas 57,195  
11th District 59,807  
U.S. 722,845  
2015
Bankcard Loans
  Total balance (millions of dollars)
Louisiana 1,418  
New Mexico 1,061  
Texas 53,403  
11th District 55,882  
U.S. 696,438  
2016
Consumer Finance Loans
  Total balance (millions of dollars)
Louisiana 434  
New Mexico 248  
Texas 10,132  
11th District 10,814  
U.S. 86,252  
2015
Consumer Finance Loans
  Total balance (millions of dollars)
Louisiana 417  
New Mexico 226  
Texas 8,853  
11th District 9,496  
U.S. 76,343  
2016
First Mortgage Loans
  Total balance (millions of dollars)
Louisiana 11,948  
New Mexico 8,288  
Texas 471,548  
11th District 491,783  
U.S. 8,107,816  
2015
First Mortgage Loans
  Total balance (millions of dollars)
Louisiana 11,711  
New Mexico 8,237  
Texas 443,833  
11th District 463,781  
U.S. 7,873,484  
2016
Home Equity Loans
  Total balance (millions of dollars)
Louisiana 269  
New Mexico 221  
Texas 12,305  
11th District 12,795  
U.S. 128,764  
2015
Home Equity Loans
  Total balance (millions of dollars)
Louisiana 281  
New Mexico 214  
Texas 12,513  
11th District 13,008  
U.S. 131,936  
2016
Home Equity Line of Credit Loans
  Total balance (millions of dollars)
Louisiana 489  
New Mexico 156  
Texas 7,711  
11th District 8,355  
U.S. 481,429  
2015
Home Equity Line of Credit Loans
  Total balance (millions of dollars)
Louisiana 504  
New Mexico 168  
Texas 7,380  
11th District 8,052  
U.S. 497,826  
2016
Retail Loans
  Total balance (millions of dollars)
Louisiana 228  
New Mexico 151  
Texas 7,770  
11th District 8,149  
U.S. 79,033  
2015
Retail Loans
  Total balance (millions of dollars)
Louisiana 221  
New Mexico 144  
Texas 7,146  
11th District 7,511  
U.S. 73,460  
2016
Student Loans
  Total balance (millions of dollars)
Louisiana 3,488  
New Mexico 1,702  
Texas 88,501  
11th District 93,692  
U.S. 1,230,778  
2015
Student Loans
  Total balance (millions of dollars)
Louisiana 3,225  
New Mexico 1,654  
Texas 82,293  
11th District 87,171  
U.S. 1,160,382  
2016
Other Loans
  Total balance (millions of dollars)
Louisiana 945  
New Mexico 678  
Texas 18,811  
11th District 20,434  
U.S. 182,746  
2015
Other Loans
  Total balance (millions of dollars)
Louisiana 1,135  
New Mexico 647  
Texas 18,143  
11th District 19,925  
U.S. 176,498  

NOTE: Loan balances for Louisiana and New Mexico include only the portions of those states that fall within the Eleventh District of the Federal Reserve.
SOURCE: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.

Glossary

Delinquency status
  • Current—Paid as agreed
  • 30 days late—Between 30 and 59 days late; not more than two payments past due
  • 60 days late—Between 60 and 89 days late; not more than three payments past due
  • 90 days late—Between 90 and 119 days late; not more than four payments past due
  • 120 days late—At least 120 days past due; five or more payments past due or collections
  • Severely derogatory—Any of the previous states, combined with reports of repossession, charge off to bad debt or foreclosure

Not all creditors provide updated information on payment status, especially after accounts have been derogatory for a longer period. Thus, the payment performance profiles obtained from our data may to some extent reflect the reporting practices of creditors.

Seriously delinquent loans
Loans that are 90 days late, 120 days late or severely derogatory.

Equifax Risk Score
Equifax Risk Score 3.0 was developed by credit scoring agency Equifax and predicts the likelihood of a consumer becoming seriously delinquent (90+ days past due). The score ranges from 300 to 850 (the lower the score, the greater the delinquency risk). In the charts, Equifax Risk Scores fall into the following categories: Prime, 680 and above; near prime, 620–679; and subprime, 619 and below. Deep subprime refers to scores 550 and below.

Loan types
The types of accounts in the analysis include mortgage loans, home equity installment loans (HEL), home equity line of credit accounts (HELOC), auto loans, bankcard accounts, student loans, con- sumer finance loans (sales financing, personal) and retail loans (clothing, grocery, department store, home furnishings, gas, etc.).

Data dictionary

About the Data

The Federal Reserve Bank of New York Consumer Credit Panel/Equifax consists of detailed Equifax credit report data in quarterly increments from 1999 to the present for a unique longitudinal panel of individuals and households. The panel is a nationally representative 5 percent random sample of all individuals with  a Social Security number and a credit report; it is also matched to individuals living at the same address
as the primary sample members. The resulting database includes approximately 40 million individuals in each quarter.

More technical background about the data is available on the New York Fed website. For conditions nationally, visit the New York Fed’s Household Debt and Credit Report webpage.

The Bank’s Quarterly Report on Household Debt and Credit provides data and reports on consumer debt for the U.S. and select states (including Texas). The data include bankruptcies, per capita debt levels, total debt levels and composition of debt, new originations of installment loans, total balance by delinquency status, foreclosures and new delinquencies by loan type. The report aims to help community groups, small businesses, state and local government agencies and the public to better understand, monitor and respond to trends in borrowing and indebtedness at the household level.

In the Consumer Credit Conditions update, charged-off and foreclosed loans are accounted for in totals in the Equifax data until they are no longer reported by the lender.