Auto Loan Delinquencies Hit Record High

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    The Federal Reserve Bank of New York just put out its latest quarterly report on U.S. household debt and found that Americans collectively owe about $13.54 trillion, an amount that has risen for 18 consecutive quarters and is 21% higher than the $12.7 trillion owed in 2008 during the height of the Great Recession.

    Among the more troubling facts from the report is the record 7 million Americans who are 90 days or more behind on their auto loan payments. It's a signal, economists say, that Americans are struggling to pay bills despite other indications of a strong economy and low unemployment. Approximately 6.5% of all auto finance loans are 90-plus days past due.

    Student loan debt edged higher, hitting $1.46 trillion in the fourth quarter, and serious delinquency rates in the category continue to be much higher than any other debt type.

    Mortgage debt accounted for most of the total, hitting $9.12 trillion in the fourth quarter.
    What does this mean for the overall economy?
    Despite the concerns in the auto-loan segment, Americans were generally less eager to boost their debt in late 2018. Credit inquiries hit a new low in the history of the Fed survey, driven largely by a decline in refinancing requests. This is good news generally, but it could also signal potential trouble for consumer spending, which accounts for more than two-thirds of U.S. economic activity.
    The Fed report made sure to note that the overall level of auto loan credit quality actually improved, with less-worthy borrowing declining to 22% of the total share while 30% is now held by those on the higher end of the scale. But the rise in delinquencies is cause for concern.

    "The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market," noted economists in a blog the New York Fed produces. The report said there were more than a million "troubled borrowers" at the end of 2018 -- when unemployment was 4% -- compared to 2010 (10% unemployment).

    A rise in auto-loan defaults is unlikely to cripple the entire financial system as mortgages did in the run-up to the 2008-2009 financial crisis. The total auto-loan market is just over $1 trillion, compared to $12 trillion for housing.

    "Auto loan originations for 2018 reached an all-time high in our dataset and the growth has been driven by creditworthy individuals," said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. "Despite auto debt's increasing quality, its performance has been slowly worsening. Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans."