By Dow Jones Business News,
August 14, 2014, 02:01:00 PM EDT
By Alan Zibel
Americans showed a selective willingness to borrow during the spring, taking out new auto loans at the fastest pace
in nearly eight years while fresh home loans tumbled to the lowest level since 2000.
Total outstanding household debt--including mortgages, home-equity loans, credit cards, auto loans and student
loans--sank $18 billion between April and June to $11.63 trillion, according to a report released Thursday by the
Federal Reserve Bank of New York. That marked the first decline after three quarters of increases.
Meanwhile, more Americans are making loan payments on time. The share of Americans' debt that was seriously overdue
fell to 4.5%, the lowest level since the start of 2008.
According to the report, student-loan balances increased $7 billion, bringing the nation's student-loan tab is now
Credit-card debt outstanding rose by $10 billion on to $669 billion, but was slightly below year-ago levels. That
trend suggests Americans are still playing it relatively safe when it comes to using credit cards, a force that could
keep a damper on consumer spending.
Taken together, the trends suggest American households continue to recover from the recession by paring existing
debt and taking on new loans judiciously.
But the milestones in home-loan and auto-loan borrowing point to a growing divergence in lending standards.
Mortgage lending fell to a 14-year low due a drop in refinancing as well as looser-but-still-tight credit
standards, new government regulations and an uncertain recovery in the housing market.
The amount of new mortgage loans extended in the quarter fell to $286 billion, the lowest level since 2000, and
half the $589 billion extended in the second quarter of 2013. Total mortgage debt outstanding fell by $69 billion from
the prior quarter to $8.09 trillion. Home-equity lines of credit fell by $5 billion on a quarterly basis to $521
The drop in mortgage lending comes as banks have begun slowly to ease their underwriting standards for mortgage
loans. A Federal Reserve survey of bank-loan officers last week found nearly a quarter of those surveyed eased standards
on mortgages made to borrowers with good credit, the first sign of a thaw on that front since the housing bust.
Still, nearly half of lenders said mortgage standards were tighter than their median requirements for the past
decade, and half of those surveyed said new federal rules designed to encourage safe lending had reduced approval rates
on mortgages for expensive homes.
Meanwhile, auto lending, which didn't experience the high levels of defaults that led to the foreclosure crisis, is
robust, with total loan balances increasing for the 13th straight quarter.
New auto loans made in the quarter grew to the highest in nearly eight years, the report said. Total auto-loan
balances grew by $30 billion to $905 billion. While auto-loan delinquencies remain low, analysts and consumer groups
have been worried that lenders are loosening underwriting guidelines, which could boost defaults.
However, New York Fed researchers, in a blog post accompanying the report, said growth in auto loans has been most
pronounced among riskier borrowers in recent years, with new loans to borrowers with low credit scores doubling since
2009. The resurgence in subprime auto lending is most prominent among auto-finance companies, typically owned by a car
makers, rather than banks or credit unions, the report said.
Auto lenders, however, say concerns about such practices are overblown, and that defaults in the auto-loan business
"The proof is in the pudding," said Bill Himpler, executive vice president of the American Financial Services
Association. "The loans are performing and the securities are performing."
Corrections & Amplifications
Total auto-loan balances were $905 billion at the end of June. An earlier version of this article incorrectly said
total auto-loan balances were $905 billion.
Write to Alan Zibel at firstname.lastname@example.org
Corrections & Amplifications
This item was corrected at 4:06 p.m. ET. Total auto-loan balances were $905 billion, not $8.09 trillion.
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