Consumers paying back loans faster

LOAN DRIVER: Ray Larson, owner of Charles Street Motors in North Providence, with office manager Julia Howard. / PBN PHOTO/NATALJA KENT
LOAN DRIVER: Ray Larson, owner of Charles Street Motors in North Providence, with office manager Julia Howard. / PBN PHOTO/NATALJA KENT

Despite continued high unemployment as the economy slowly recovers from the Great Recession, one indicator points to potential improvement: Borrowers are paying back their debts in a more timely manner.
According to Equifax, of Atlanta, auto-loan delinquency rates for payments at least 60 days overdue fell 35 percent in July when compared with the same month in 2011. Bank-card delinquencies dropped 21 percent over the same period. The bureau reported the July figures as part of its monthly National Consumer Credit Trends report. First-mortgage delinquency rates of 30 days or more fell 15 percent, and home-equity revolving lines-of-credit delinquency rates fell 7 percent, the company added.
According to Chicago-based TransUnion, the national share of auto-loan borrowers 60 or more days past due hit its lowest level in the second quarter since the company began tracking the data in 1999, falling to 0.33 percent from 0.36 percent in the first quarter. The decline is not isolated to this year, having fallen 25 percent in the 12 months starting July 1, 2011. Similarly, the mortgage delinquency rate of borrowers 60 days past due dropped for the second consecutive quarter, declining to 5.49 percent in the second quarter, a drop of 9 percent since January 2012.
The local numbers follow the same trend, although they are not as dramatic. According to TransUnion, the Ocean State had a mortgage delinquency rate as of June of 5.58 percent, slightly higher than the national average, and a 90-day delinquency rate for bank cards of 0.66 percent, again slightly higher than the national average. The state’s auto loan delinquency rate for payments at least 60 days overdue is identical to the national average at 0.33 percent, less than half the 0.74 percent rate in June 2010, the second-highest in the nation at the time.
One reason for the improved loan performance is the change in lending standards since before the recession. “If you look back to before the economic crisis, banks were taking customers with credit scores of 525, which is easily sub-prime. Most banks won’t touch anyone under 640 right now,” said Raymond J. Larson, owner of Charles Street Motors, North Providence. He has been in the business for almost 30 years and was one of the first automobile dealers in the state to offer “guaranteed financing.”
“Lending institutions are thriving a little, but it is more difficult to put a deal together than before the recession. They are looking for higher payments or a larger down payment to get the customer more committed.” He also believes that car dealerships that traditionally stayed away from complex financing are now entering the business in an attempt to increase their sales.
“Interest rates have gone down so sales will be up,” said Steven King, sales manager for Balise Chevrolet in Warwick. “We usually don’t know about a customer and the status of their payments unless there is a problem and a trade is involved. Sales are up a little bit, probably because the lending guidelines have loosened up a little,” he said.
“We have seen that in our financing,” said Larry Cronin, general manager at Paul Bailey’s Chrysler, Dodge, Jeep & Ram in North Kingstown. “Money is more available.” He explained that because of the Great Recession, it became difficult to obtain funding. Now he says that restrictions have been relaxed to accommodate those in the subprime market that are in the best financial health. “They might pay for it with high interest rates, but right now those rates are not as high as they’ve been in years past,” he said.
Despite the improvement, there is still not a sense that the conditions that cause the delinquencies in the first place have abated. “I wouldn’t say that we have seen [less pressure on consumers] directly,” said Kenneth J. Amoriggi, a debt collections lawyer with his own private practice in North Providence. Amoriggi defends individuals dealing with collection agencies “That would mean that our workload would decrease and that is certainly not the case.
“What I think is more realistic to say is that we are seeing a greater willingness [by lenders] to either discuss the problems, work out a payment schedule or come to some sort of agreement,” he said. “I do not deal in real estate so I cannot speak to that, but with regards to what one would consider as general debt, we are seeing an increased ability to pay off delinquencies” thanks to a change in approach by lenders.
According to Steven P. Frankel, president of Ashton & Weinberg, a commercial debt collection agency in Smithfield, there is an increased willingness to talk. “A few years ago, if you missed two consecutive car payments, maybe they would come out and repossess the car. After hooking up so many cars, it may be that their inventory is so thick, they are more apt to work with people. They could reduce the loan amount or adjust the interest rate. You could keep the car with a lower monthly payment but they would keep a closer eye on timely payments,” he said. But it could be a more positive sign from the economy than just a different attitude. On Sept. 4, Experian announced that loans to customers in the nonprime, subprime and deep-subprime risk levels accounted for 25.4 percent of new vehicle sales in the second quarter of 2012, an increase of 14 percent compared with the same period in 2011. In addition, new vehicle loans to credit-challenged customers now are a higher percentage of all auto loans than they were just prior to the economic crisis.
The availability of financing has helped boost auto sales, according to industry researcher Autodata Corp. of New Jersey. Sales rose 8.9 percent to 1.15 million new cars and light trucks in July, maintaining an annual pace of 14.1 million vehicles, according to Autodata. In the first half of the year, the dollar value of sales at motor-vehicle dealers grew 8.7 percent when compared with the same period last year. That increase compares favorably with an overall increase in non-auto retailers’ sales of 5.9 percent, according to the Commerce Department’s monthly data.
“Whether you like the unemployment numbers or not, they are getting better and they’ve become a little more stable,” Robert A. Hurzeler, chief operating officer of Global Lending Services, an Atlanta-based auto finance company.
“There is a huge need for subprime borrowers. [Consumers] fell on hard times, they’re beginning to come back, and they are going to need cars,” he said. “Clearly, the country needs subprime lenders to help facilitate that and get people back on their feet. My hope is that it’s not just to get a car but to help people re-establish credit and better themselves.”
“If the unemployment rate should increase, some of the customers on the books will [not pay back loans in a timely manner]. And others might become squeamish when thinking about buying their next car.”
Concerning autos, he considers pent-up demand over the last few years to be a factor. “We see it in the data. The average age of cars on the road today is much greater than it was three years ago,” he said. According to Experian, the average vehicle on the road is 11 years old, up 1.9 percent from March 2011. •

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