US Household Debt Delinquencies Rise to Highest Levels in a Decade
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Household Credit Stress Has Surged From its Post-COVID Lows
Quarterly data released last week confirm what MDX® Indices have reflected in the past several months — household debt delinquencies are elevated. The delinquency rate on all outstanding household debt rose to 4.8% in the fourth quarter according the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. This survey includes mortgage, HELOC, auto, credit card, and student loan debt. Significantly, these results mark the highest delinquency level since 2017.
Aggregate Outstanding US Household Debt in Delinquency
Sources: Bloomberg; Federal Reserve Bank of New York
Mortgage delinquencies rose across all product types, as data from the Mortgage Bankers Association illustrates. FHA loans in particular, originated to lower- and middle-income borrowers, registered the greatest increase during the past quarter, reaching 11.52%. Prior to COVID, the last time FHA delinquencies reached this level was in 2012 during the aftermath of GFC.
Mortgage Delinquency Rates by Loan Type
Source: Mortgage Bankers Association
When recent mortgage data is further analyzed by income quartile, NY Fed analysis shows a similar story. While mortgage delinquencies rose across all income quartiles, delinquency rates rose at the fastest pace amongst two lowest quartile borrowers to rates last seen in 2016.
Mortgage Delinquency Rate by Income Quartile
Sources: Liberty Street Economics; New York Fed Consumer Credit Panel/Equifax; IRS Statistics of Income.
Notes: The chart plots new 90+ days delinquent mortgage balances by zip-income quartile. The lowest-income quartile is quartile 1; the highest-income quartile is quartile 4. Mortgage delinquency rates are at an annual rate, summing over the four quarters.
Recent US Household Delinquency Trends Are Reflected in MDX
MDX Indices show these increasing rates of US household debt delinquencies in their monthly calculation. Each MDX.GN index series references Ginnie Mae loans pooled during a 6-month window and measures their cumulative credit performance through Credit Events. Credit Events in MDX are determined by borrower loan data identifying 120-day delinquencies and loan modifications as evidence of credit stress. The MDX index methodology reflects borrower trends on an ongoing monthly basis, providing a timely benchmark for financial products.
MDX.GN Index Values by Month
Source: Vista Index Services
Current US household borrower delinquency trends appear in the outright counts of MDX Credit Events. Additionally, relative MDX Credit Event Rates show the changing rates of credit stress during different points over the last several years (request data here).
Annualized 3mo Credit Event Rate of Select MDX Indices at 36-Month Point
Source: Vista Index Services
Beginning March 2nd, market participants will have the ability to manage risk around prevailing household borrower credit trends by buying and selling MDX Swaps. For more information, please contact a licensed MDX swap dealer.