As unemployment rises so too will credit card and home-equity delinquencies. This it is not surprising to see this headline: Delinquencies on U.S. Home-Equity Loans Reach Record.

Late payments on home-equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Association reported.

Delinquencies on home-equity loans climbed to 3.52 percent of all accounts from 3.03 percent in the fourth quarter, and late payments on home-equity lines of credit climbed to a record 1.89 percent, the group reported today. An index of eight types of loans rose for a fourth straight quarter, to 3.23 percent from 3.22 percent in October through December, the group said.

“The number one driver of delinquencies is job losses, which we’ve seen build and build,” James Chessen, the group’s chief economist, said in a telephone interview. “Delinquencies won’t come down without a dramatic improvement in the economy and businesses will have to start hiring again.”

Delinquent bank-card accounts jumped to a record 6.60 percent of outstanding card debt in the first quarter from 5.52 percent in the previous period, a signal unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the ABA said.

“There is less equity to draw on and certainly financial institutions have been scaling back the available lines of credit,” Chessen said. Banks boosted reserves for losses on delinquent loans and have adopted more cautious underwriting policies, he said.

The composite index rose to the highest level since the group began collecting data in October 1974. Loans are considered delinquent when a late payment is 30 days or more overdue.

Of the closed-end accounts, delinquencies rose on five: home-equity loans, direct auto loans, recreational vehicle, mobile home and personal loans, the group said. Auto loans are 45 percent of all consumer closed-end loans, the ABA said.

Rates for indirect auto loans, made through third parties such as a dealer, fell to 3.42 percent from 3.53 percent in the fourth quarter. Property improvement and marine loan rates also declined.

No relief is in sight for jobs. Expect unemployment to rise for another year. By the way, January and July are revision months for the Birth Death Model.

From Jobs Contract 18th Straight Month; Unemployment Rate Hits 9.5%

Birth Death Model Revisions 2008

click on chart for sharper image

Birth Death Model Revisions 2009

Take a look at January 2009 and July 2008.

At some point the BLS is going to have to get its hugely flawed model corrected and there will be a massive backward revision in jobs. I suspect this July is not that revision. However, I am looking for another bad month.

Regardless, there is no driver for jobs, and that is what counts, not the make-believe as well as unbelievable unemployment number put out by the BLS monthly.

Mike “Mish” Shedlock
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