PHILADELPHIA–Exposure to risk in credit card portfolios grew as performance declined in the last quarter of 2023, while new mortgages also appear to be riskier, according to a report from the Philadelphia Fed.
The report noted that nominal credit card balances moved up in the fourth quarter of 2023, establishing a new series high.
“Card utilization also rose, as is typical at year-end, and consumers with stretched credit lines drew further on those lines,” the Philadelphia Fed said. “Credit limits increased for more consumers than in the third quarter, especially for those with already-high credit limits.
“Notably, card performance usually declines in the fourth quarter. Stress among cardholders was further underscored in payment behavior, as the share of accounts making minimum payments rose 34 basis points to a series high from last quarter’s reading,” the Philadelphia Fed continued. “The share of accounts making full balance payments did tick up 8 basis points in the fourth quarter, but the 3.1% increase in revolving balances implies higher card balances among a smaller group of revolvers.
‘Worst Card Performance’
But all of that has come with a downside, the report cautions.
“Fourth quarter 2023 featured the worst card performance in the series. All stages of account-based delinquency reached series highs,” the Philadelphia Fed stated. “Only the 90+ balance-based rate was under its series high, set over a decade ago. As credit performance deteriorated, the median origination credit limit decreased for a second consecutive quarter.”
Low Mortgage Originations
Meanwhile, the new analysis also found mortgage originations were the lowest in the series.
“Originated mortgages hint at a possible change in the risk approach of firms,” the Philadelphia Fed said. “While credit scores remain steady, median original front-end debt-to-income and loan-to-value are elevated compared with fourth quarter 2021 levels. There was a slight quarter-over-quarter increase in the 30+ days past due rate, but delinquencies are near series lows and well below pre-pandemic levels.”
New Mortgages Exhibit Riskier
In addition, the new Fed report said originations declined to a series low in the fourth quarter of 2023 as market headwinds continued to stifle overall mortgage demand.
“Year-end data highlighted shifts in large bank underwriting practices, largely related to rising housing costs. Origination credit scores remain at or near levels observed in the fourth quarter of 2021,” the report stated. “However, the median front-end debt-to-income (DTI) ratio rose to a series high and sits 500 basis points above its fourth quarter 2021 level. Median origination loan size and loan-to-value (LTV) have increased 9.3% and 900 basis points, respectively, over the same time period.
“Combined, the increases underscore continued affordability issues as housing costs consume a larger share of borrowers’ budgets,” the report added.
Daily News Headlines. To Your Inbox. Every Day. And It’s Free
The biggest, best and freshest news reporting in credit unions remains free, and now has an added bonus---free shipping to your email address! That’s right. Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more. So stop paying those bank-fee-like subscription prices from other so-called “news” publications!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance.
And did we mention it’s free?