Credit Card Charge-offs and Delinquencies Fall; Mortgage Arrears Still Very High

The Federal Reserve said last week that the charge-off and delinquency rates for credit card accounts fell in the fourth quarter of 2011, along with late payments rates for mortgages. The numbers for credit cards and other consumer loans have fallen back to their long-term, pre-recession averages, while mortgages remain extraordinarily historically high.

The Fed releases quarterly loan performance metrics for all member institutions. It defines a delinquency as a loan that is 30+ days late in payment and charge-off numbers are reported as net (gross charge-offs minus recoveries). Both reported numbers are as a percentage of all loans held at lending institutions.

In the fourth quarter of 2011, the average charge-off rates for credit card accounts in the U.S. was 4.93 percent, a 13 percent decline from the third quarter of 2011. But Q3 2011 saw a large spike in the credit card charge-off rate. The fourth quarter’s decline brought the rate back down to the level it was at in the second quarter of 2011. The 4.93 percent rate roughly aligns with long-term, “normal” economy averages.

Delinquencies among credit card accounts also fell to 3.27 percent, a 5.7 percent decline from the previous quarter. The current credit card delinquency rate is below long-term averages, as banks have become increasingly strict with the standards they use to approve new card accounts and limit increases.

Residential mortgage delinquencies also fell in the fourth quarter to an annualized rate of 9.86 percent, marking the first quarter home loan late payment rates have been below 10 percent. The average residential mortgage delinquency rate is still far above the long-term average of around 2 percent.