Card issuers report fewer delinquencies

Positive sign offset as more default on mortgages

Bank of America wrote off fewer accounts in July, and its net loss rate fell to 13.81 percent from 13.86. Bank of America wrote off fewer accounts in July, and its net loss rate fell to 13.81 percent from 13.86. (Mark Lennihan/ Associated Press)
Associated Press / August 18, 2009

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Reports on credit card and mortgage delinquencies gave mixed messages about a recession recovery.

Most major credit card companies said fewer customers defaulted on their accounts in July from the month before, but some say more families fell behind on payments. And though the delinquency rate on US mortgage loans hit an all-time high in the second quarter, the pace of growth for the rate slowed.

With more than 6 million people living on unemployment benefits and the recession continuing to pressure family budgets, many are forced to prioritize their bills. The reality is that credit cards often fall to the bottom.

Major credit card issuers reporting monthly results say the rate of losses from unpaid accounts improved from June to July.

American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup, Discover Financial Services, and JPMorgan Chase & Co. all say the number of account balances written off due to nonpayment fell.

American Express, for example, said its net loss rate fell to 8.92 percent in July from 10.18 percent the month before. Bank of America fell to 13.81 from 13.86, and Chase saw a drop to 7.92 percent from 8.04.

What’s more, most of the major card issuers also reported more customers making payments on time.

The positive trends don’t necessarily mean consumers are suddenly in much better financial shape.

Some of the uptick is more likely due to credit card companies culling the riskiest customers, which will in time lower default and delinquency rates, said bank industry analyst Richard Bove of Rochdale Securities.

The slight increase in the monthly credit card data also could be attributed to the fact that consumers are striving to maintain a good relationship with their card companies, said Ezra Becker, a consultant for TransUnion LLC, a leading consumer credit rating company.

“They recognize that in a recession their credit cards are their primary cash equivalent resource,’’ Becker said. “Credit cards really help a lot of people make it from paycheck to paycheck or tide them over in periods of unemployment.’’

Still, of the major companies reporting monthly results, Capital One, Discover, and CitiBank reported an increase in the number of customers falling behind on payments due more than 30 days. Customers delinquent from 30 to 59 days rose for Capital One and Citibank.

The mixed results may simply show that some credit card companies were able to manage credit problems more efficiently than others as the economy deteriorated.

“What this tells you is the issuers are in different stages of recovery,’’ said John Ulzheimer, president of consumer education for, an online financial services company. “Some issuers did a better job of jumping on the problem more aggressively early on and those are the guys coming out a little bit earlier smelling like a rose.’’

On the mortgage front, data provided by credit reporting agency TransUnion show the ratio of mortgage holders who are 60 days or more behind on their payments increased for the 10th-straight quarter, to 5.81 percent nationwide for the three months ended June 30.

That’s up 65 percent, from 3.53 percent, in the 2008 second quarter.

Delinquency of 60 days is considered a precursor to foreclosure, because of the difficulty homeowners would have coming up with two back payments to bring themselves current.

While the delinquency rate hit a new high, however, the increase from the first quarter to the second was 11.3 percent. In the two prior quarters, the rate jumped nearly 16 percent.

That slowdown may be a good sign, said FJ Guarrera, vice president of TransUnion’s financial services division. “We have reason to be cautiously optimistic,’’ he said.