TransUnion reported this week that in the second quarter of 2011 the number of US credit card accounts that are seriously delinquent (>90 days past due) dropped to its lowest level in 17 years. This continues a trend that began six quarters ago, bringing the rate down to 0.6%, nearly 40% lower than it was this time last year.
So why is nobody smiling?
If you're a consumer, you've probably got concerns about the economy and your job, and as a result you are reducing your spending with both cash and credit to save for the forecasted rainy day. After all, it’s a lot easier to keep a smaller credit card account up to date, but this does not necessarily mean you are happy doing so.
If you are a card issuer, the lower delinquencies translate to lower future loan losses, which is a good thing. But when it comes as a result of customers reducing their borrowing, it means lower income from interest and puts increased pressure on bank operations (like collections) to do things more efficiently. So you are not happy.
And if you happen to also be a mortgage lender, the news is even worse. In contrast to the improving trend in credit card delinquency, the number of past due mortgages continues to climb. According to Lender Processing Services, the number of mortgages over 30 days past due has increased by 3% in the past two months. This means mortgage servicers have even more work to do as they implement the aggressive outreach to delinquent borrowers mandated by Fannie & Freddie's revised servicing guidelines.
No wonder everyone is grumpy. For me, that's strong motivation to take a look at operational strategies and tactics and adapt them to these new dynamics:
- Consumers should take advantage of their reduced debt loads to improve their credit scores by paying every bill on time. If you've not already done so, get enrolled in your creditors auto-debit programs so you never miss a due date. And if your credit is already excellent, think about re-financing your mortgage at the lowest interest rates in modern history.
- Credit card issuers should be sure to leverage their customer's increased awareness of their credit standing by treating delinquent accounts early in their aging, before it is reported past due to the bureaus. When you do, be sure to mention the positive impact prompt payment can have on credit scores to incent the customer to pay today.
- With the increased workload required by the GSEs, mortgage servicers must automate their customer outreach, using digital interactions such as interactive voice messages, SMS text and email to lead customers into profitable action. Even if the outcome is forbearance or loss mitigation rather than payment, it’s better than allowing the delinquent borrower to hide from the obligation and delay the inevitable day of reckoning.