First and second lien mortgage defaults both increased in August from July, according to the S&P/Experian Consumer Credit Default Indices.

First lien mortgage defaults rose on the index to 0.84% from 0.80%, while second lien defaults rose on the index from 0.55% to 0.57%.

Click to enlarge

(Source: S&P/Experian)

Despite the monthly increase, the default rate on first and second lien mortgages is down on an annual basis.

“The ongoing improvement in the consumer economy is reflected in consumer credit default rates,” says David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “In recent months, we have seen substantial job growth, increases in consumer spending, and a rise in consumer credit outstanding. Despite continued weak wage growth, consumer credit default

By using a representative sample of loan level payment data sourced directly from lenders included in Experian's consumer credit database, these indices are constructed to track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.

Four of the five major cities saw their default rates increase in the month of August.

New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71% in August.

Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month.

Los Angeles was down 13 basis points to 0.76%, the only city to report a decrease in August.

Click to enlarge

(Source: S&P/Experian)

“With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase,” Blitzer said. “A quarter-point increase in the Fed funds rate will not affect fixed rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.

“Barring a pattern of rapid sustained interest rate increases from the Fed – which no one foresees – the near-term impact on consumer defaults will be very small. Immediate results of a Fed move will be seen in the stock and financial markets,” he said.

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