Newly originated mortgages reach record high

Total U.S. household debt increased by $206 billion, or 1.4 percent, to 14.56 trillion in the fourth quarter of 2020, amid a sharp increase in new and refinanced mortgage loans. 

That’s according to the Quarterly Report on Household Debt and Credit, issued by the Federal Reserve Bank of New York’s Center for Microeconomic Data on Feb. 17.

The total debt balance is now $414 billion higher than the year prior. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative random sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.

Mortgage balances — the biggest component of household debt — topped $10 trillion in the fourth quarter — increasing by $182 billion to $10.04 trillion at the end of December. While credit-card balances increased by $12 billion over the quarter, they were $108 billion lower than they had been at the end of 2019. It’s the largest year-over-year decline since the series began in 1999. The New York Fed says this overall decline is “consistent with continued weakness in consumer spending and revolving balance paydowns by card holders.”

Auto and student-loan balances increased by $14 billion and $9 billion, respectively. In total, non-housing balances (including credit card, auto loan, student loan, and other debts) rose by $37 billion during the fourth quarter but remained below end-2019 levels.

Newly originated mortgages reached a record high and new auto loans hit their second-highest quarterly volume since 2000. Mortgage originations, which include refinances, stood at $1.2 trillion, “surpassing in nominal terms the volumes seen during the historic refinance boom” of the third quarter of 2003, per the New York Fed.

Auto-loan originations, which include both loans and leases, fell slightly from the record high hit in the third quarter but were at the second-highest level for the series, at $162 billion.

“2020 ended with a substantial increase in new extensions of credit, driven by record highs of new mortgages and auto loan originations,” Wilbert Van Der Klaauw, senior VP at the New York Fed, said in a news release about the Quarterly Report on Household Debt and Credit. “Notably, the overall median mortgage origination credit scores jumped up, reflecting a high share of refinances.”

Total delinquency rates continued to decline in the fourth quarter as more people took advantage of loan forbearances, which were provided by the federal CARES Act or voluntarily offered by lenders. The share of mortgages that transitioned to early delinquency ticked down to 0.4 percent. As of late December, the share of outstanding debt that was in some stage of delinquency was 1.6 percentage points lower than the rate at the end of 2019 — before the COVID-19 pandemic hit the U.S., according to the report. About 121,000 consumers had a bankruptcy notation added to their credit reports, a decline from the previous quarter and a new series low.

The share of federal student loans and federally backed mortgages transitioning into delinquency both continued to fall, as they remained covered by CARES Act forbearances. Auto loans and credit-card delinquency transition rates also continued to decline, aided by government-stimulus programs and bank-offered forbearance options for troubled borrowers.

The Federal Reserve Bank of New York’s Household Debt and Credit Report provides data and insight into the credit conditions and activity of U.S. consumers. Based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data, the report provides a quarterly snapshot of household trends in borrowing and indebtedness, including data about mortgages, student loans, credit cards, auto loans, and delinquencies. The New York Fed says the report seeks to help community groups, small businesses, state and local governments, and the public to better understand, monitor, and respond to trends in borrowing and indebtedness at the household level. The full report is available at: https://www.newyorkfed.org/microeconomics/hhdc.html.