NEW YORK (Reuters) - Rising unemployment continues to make more Americans late on their mortgage payments, a sign that the rate of U.S. personal bankruptcies will keep going up, according to monthly data from the Equifax credit bureau obtained by Reuters.
Among U.S. homeowners with mortgages, 7.23 percent were at least 30 days late on payments in June, up from about 4.5 percent a year earlier and 7.01 percent in May, according to Equifax Inc. The rate of subprime mortgage delinquencies jumped almost a full percentage point to 39.25 percent.
Early-stage delinquencies are a leading indicator of future bankruptcy filings, and the June data suggest bankruptcies will continue rising in coming months. Bankruptcy filings were up 31 percent in June compared with a year earlier.
While credit card delinquency rates fell slightly from May, the decline may largely reflect tougher standards imposed by credit card issuers, as well as less credit being extended to most borrowers, except those with the highest credit scores, Equifax said.
“Those who need credit the least are getting access to it the most,” said Dann Adams, president of U.S. Information Systems for Equifax.
Credit card companies, concerned about the effects of new government restrictions on lending practices, are offering fewer cards to subprime borrowers and to young people. The majority of new cards now go to “prime” borrowers with credit scores of 740 or higher, compared with about 30 percent three years ago.
Credit lines, meanwhile, are down by $647 billion over the past year to about $3 trillion; the number of card accounts is down to 360 million from 440 million at the peak.
Less credit, coupled with pressure on consumers from falling home values and rising unemployment, suggest the credit environment will reset to a “new normal” once an economic recovery takes root, Adams said.
“You will always have appetite for credit products and services, but we’re not going to be lending at the rate we were lending money,” he said.
A new credit card law designed to protect borrowers may have unintended consequences, Adams said. Lenders are unsure how the law will affect them when it takes effect next year, so they are being careful about signing up new accounts.
Since 60 percent of new credit files start with a charge card, cutting off young, untested consumers at the start of their credit history means limiting the ability of these borrower to get credit in the future.
“What you’re going to see in the future is young consumers will have less access to credit because they will not have established any credit history via credit cards,” Adams said. “It’s a fundamental change in the credit card landscape.”
The new credit card law, designed to ease the burdens on recession-battered consumers, caps rates and fees on cards starting next February, adding to pressure on an industry already facing massive credit losses that might not peak for several more months. The new law will also limit card companies’ ability to raise rates on existing balances.
Credit card issuers include JPMorgan Chase & Co, American Express Co, and Discover Financial Services, as well as Bank of America Corp and Citigroup Inc.
Bank card delinquencies edged down to 4.67 percent last month from 4.79 percent in May.
Delinquencies among subprime borrowers are much higher, at 14.73 percent, but fewer such borrowers are getting cards. Subprime accounts for 20 percent of new cards issued, compared with 33 percent before the recession. Credit lines, on average, are 20 percent smaller.
Reporting by Nick Zieminski; editing by John Wallace
Our Standards: The Thomson Reuters Trust Principles.