The Federal Reserve Bank of New York reported Thursday that the COVID-19 pandemic prompted household debt repayments in the second quarter of 2020, leading to the first quarter-over-quarter decline since 2014.
The New York Fed’s Consumer Credit Panel, which uses national data from Equifax, shows total household debt fell by $34 billion to $14.27 trillion as of June 30.
The most notable drop in consumer debt came from credit card spending, where balances fell $76 billion in the second quarter to $820 billion — the steepest drop in data history of the New York Fed. Auto and student loan balances were roughly flat at around $1.34 trillion and $1.54 trillion, respectively.
The data shows signs of caution on consumer spending, although more high-frequency data suggests a stronger rebound in consumption. In June, consumer spending as reported by the Commerce Department rose 5.6%.
The drop in debt could also have been the result of the CARES (Coronavirus Aid, Relief, and Economic Security Act) economic impact payment checks passed in March. In a separate study by the Philadelphia Fed, conducted nationwide, 45.5% of respondents said they had used some of the EIP to pay off their debts.
Mortgage balances, however, continued to rise and added $63 billion in the second quarter to $9.78 trillion.
Default rates on mortgages declined, however, with 1.08% of mortgage debt classified as “high delinquency” (90 days or more past due) in the second quarter, compared to 1.17% in the first quarter. Default rates on student loans, auto loans and credit card debt also fell quarter over quarter.
The New York Fed attributed the drop in delinquency rates to the adoption of forbearance. The CARES Act provided federally mandated foreclosure moratoriums on government-backed mortgages also prevented those who were unable to make their payments from losing their homes, but that protection will expire at the end. of this month.
The rate cut in the New York Fed report may mask the cliff of foreclosures that could arise if the moratorium is lifted before households recover financially.
Congress is still debating the details of a Phase 4 package with additional fiscal support.
“The protections given to American consumers through the CARES Act have prevented large-scale delinquency from appearing on credit reports and harming future access to credit,” said Joelle Scally, Administrator of the Center for New York Fed Microeconomic Data.
Aarthi Swaminathan contributed to this story.
Brian Cheung is a Fed, economics and banking reporter for Yahoo Finance. You can follow him on Twitter @bcheungz.
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