Aug 7, 2020 - Economy & Business

Household debt and credit delinquencies dropped during Q2

Reproduced from New York Fed Consumer Credit Panel; Chart: Axios Visuals
Reproduced from New York Fed Consumer Credit Panel; Chart: Axios Visuals

Americans cut back on credit cards and increased savings during the worst three-month economic period in U.S. history, as household debt fell for the first time in six years, data from the New York Fed showed.

By the numbers: Total debt declined 0.2% to $14.27 trillion in the second quarter, led by a $76 billion drop in outstanding credit-card balances.

  • Mortgage borrowing rose by $63 billion in the quarter to $9.78 trillion. Almost 70% of mortgage originations were among borrowers with a credit score of at least 760, the highest percentage since record keeping began in 2003.

Between the lines: The number of borrowers in distress fell significantly in the second quarter, but that was largely due to government relief efforts, including $1,200 one-time payments, enhanced unemployment benefits and loan forbearance programs included in the $2.2 trillion CARES Act.

  • The serious delinquency rate on consumer debt fell by half between the end of March and the end of July, to 0.7%, data from Equifax show.

What they're saying: “Protections afforded to American consumers through the CARES Act have prevented large scale delinquency,” said Joelle Scally, senior data analyst at the New York Fed.

  • “However, these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing.”

Of note: The largest decrease in delinquencies of at least 90 days was in student loan debt, which was paused by the CARES Act. It fell to 7% compared with almost 11% in the first quarter.

  • Delinquencies of at least 90 days on credit cards, which were not paused by the CARES Act, rose to nearly 10%, the highest level since the second quarter of 2013.
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