US foreclosures hit record low as borrowers’ performance picks up
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America’s turnround from the worst debt crisis in modern times is gathering strength as new foreclosures tumble to their lowest levels since records began at the end of the 1990s and fewer borrowers fall behind on their mortgage payments.
Yet the benign picture seen in US credit markets is being marred by a persistent trouble spot and a hot-button topic in the presidential campaign: student debt, where late payments have remained doggedly high.
New data from the Federal Reserve Bank of New York reveal a sturdy performance by mortgage borrowers, as just 82,000 consumers saw their lenders begin proceedings to reclaim their mortgaged property in the second quarter — the lowest in the 18-year history of the data.
At the same time, the share of loan balances that were 90 or more days overdue declined to the lowest level since 2007 for mortgages and to a record low for credit card loans.
The strengthening record of US borrowers shows the effects of gradually rising wages, falling unemployment and ultra-low interest rates. It also reflects much tougher lending standards by banks and other financial institutions, with just under $15bn of mortgages extended to people with lower credit scores, a fraction of quarterly levels reaching $100bn during the subprime lending boom in the past decade.
Sam Khater, an economist at Corelogic, a property information provider, said the country still faces a long pipeline of crisis-era foreclosures, but when it comes to newer mortgages the performance was “pristine”.
“The US residential market is the healthiest it has been in 20 years,” he said. “It is very stable. You are seeing steady increases in house prices, steady increases in sales, and underwriting is steady . . . It is not suffering from the booms and busts we have had in the last two decades.”
Hillary Clinton has been brandishing signs of recovery from the property implosion of 2007-09 and seeks to repel arguments by Donald Trump that the Democrats have presided over the weakest rebound in modern times.
The former secretary of state told the Democratic convention in Philadelphia last month that the US was “so much stronger” than when Barack Obama took office, with 15m new private sector jobs, even as she insisted “none of us can be satisfied with the status quo”.
Mr Trump this week tries to shift the discussion to the economy as he unveiled a conservative economic platform that pledged to boost growth. Speaking in Detroit, he launched a fierce attack on the Democratic party’s record in the White House, lambasting the “weakest so-called recovery since the Great Depression” and decrying a slump in the US home ownership rate.
Rebounding US property prices have meant that home equity for owners with a mortgage has nearly doubled to $6.9tn in the past four years, according to a report by Corelogic.
Some 92 per cent of mortgaged houses had equity in the first quarter, it found. That still left weak spots in some parts of the country, with Nevada, Florida and Illinois still nursing the largest shares of homes in negative equity.
The improved story is being undermined by continued problems with student loans, however, the New York Fed figures show. The share of student loan balances that are 90 or more days overdue held at above 11 per cent in the second quarter for the eighth quarter in a row.
Americans were sitting on $1.26tn of student debt in the quarter, compared with $439bn a decade earlier. The total due was higher than amounts on auto loans and credit cards.
Addressing student debt problems has become a focus in the campaign, with Mrs Clinton pledging to help student borrowers refinance their loans at lower rates and lower interest rates for future students.
On Tuesday, Mr Trump said he would be unveiling a plan to help student borrowers in September, adding that the availability of federal student loans had allowed colleges to lift tuition costs without suffering consequences.
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