Consumer Loan Late Payments at 28-Year High

Soaring unemployment has caused more Americans to fall behind on loan payments than at any time since 1980, and delinquencies are likely to head higher, the American Bankers Association said on Wednesday.

"It is not going to be a pretty picture in 2009," James Chessen, the trade group's chief economist for 18 years, said in an interview. "The dramatic loss of jobs will have a huge impact on the ability of people to meet their debt obligations. This is one of the toughest environments we have ever seen."

The quarterly ABA study of delinquent payments found the percentage of loans at least 30 days late rose to a seasonally adjusted 2.90 percent in the July-to-September period from 2.68 percent in the second quarter.

Delinquencies on home equity lines of credit (HELOCs) and on indirect auto loans, which are made through dealerships, rose to the highest level on record, the ABA said. The ABA represents many of the largest U.S. banks and credit card companies.

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Its composite index includes direct auto, indirect auto, closed-end home equity, home improvement, marine, mobile home, personal and recreational vehicle loans. Bank credit card and education loans are not in the index.

Chessen expects consumer loan delinquencies to rise at least through the middle of the year and sees the U.S. jobless rate topping 9 percent in 2009.  The unemployment rate was 6.7 percent in November.

A report issued Wednesday by ADP Employer Services showed U.S. private employers shed 693,000 jobs in December.

"The interruption of income makes it extremely difficult for consumers to make large fixed payments," Chessen said. "Falling gas prices may bring some relief, but I'm not sure it comes close to balancing out the impact of greater job losses."

According to the ABA study, the rate of late payments on indirect auto loans rose to 3.25 percent in the third quarter from 3.07 percent in the second quarter, while late payments on HELOCs rose to 1.15 percent from 1.08 percent.

Compared with the second quarter, late payments rose to 2.63 percent from 2.56 percent on home equity loans, to 1.63 percent from 1.49 percent on property improvement loans, and to 2.69 percent from 2.67 percent on personal loans.

One bright spot was delinquencies on direct auto loans, which dropped to 1.71 percent from 1.77 percent. The rate of late payments on credit cards fell to 4.20 percent from 4.54 percent.

Chessen said consumers are saving more and trying to bring card balances down.

Democratic lawmakers in Congress are working on a massive stimulus package to jolt the economy back to life.

They are also considering ways to help prevent home foreclosures. Most major U.S. lenders are expected to post significantly lower profits or losses for the 2008 fourth quarter.

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