Consumer debt falls in Q4 on mortgage balances

NEW YORK Mon Feb 27, 2012 1:36pm EST

NEW YORK (Reuters) - U.S. households continued to shave debt in the fourth quarter as mortgage balances declined, while there were tentative signs Americans are increasingly willing to spend, according to a report released on Monday by the New York Federal Reserve.

Total consumer debt slipped a modest 1.1 percent from the third quarter of 2011, led down by a 1.6 percent decline in mortgage balances, suggesting households continue to slowly heal from the housing-market collapse and 2007-2009 recession.

Credit inquiries - an indicator of consumer demand - rose 2.7 percent from the previous quarter, and were more than 16 percent above the low hit in early 2010. Aggregate credit card limits were also up, by 3.6 percent.

There were also signs that other forms of indebtedness were on the rise, including a slight increase in student loans to $867 billion.

There are "still a lot of issues with mortgage debt because you still have a lot of homeowners who have negative equity on their homes, so that's still a bit of a problem," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

"You've seen a general trend where other types of consumer loans have been increasing, and if the bank lending gets a little easier, as the job market improves, it's all a part of the general economic recovery," he said.

The New York Fed, in its quarterly Household Debt and Credit report, said mortgage originations rose for the first time in three quarters, to $404 billion, suggesting an uptick in appetite among both lenders and borrowers.

Yet for all of 2011, originations were down 3.1 percent from 2010 and were at their lowest level since 2000.

Delinquency rates slipped to a still-high 9.8 percent, while 2.2 percent of mortgages fell into delinquency, in line with a longer-term trend of declines in this measure. Some $1.12 trillion of U.S. consumer debt was delinquent, the report showed.

"While we continue to see improvements in the delinquent balances and delinquency transition rates this quarter, there has been a noticeable decrease in the rate of improvement compared to 2009-2010," Andrew Haughwout, vice president and economist at the New York Fed, said in a statement.

"Overall it appears that delinquency rates are stabilizing at levels that remain significantly higher than pre-crisis levels."

Earlier Monday, an industry report showed contracts for home resales rose to a near two-year high in January, another sign the beaten-down industry that was at the heart of the financial crisis may be in the early stages of recovery.

(Reporting by Leah Schnurr and Jonathan Spicer; Editing by Chizu Nomiyama, Dan Grebler, Leslie Adler)

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