New York Fed: Problem debt levels in the US rose slightly in the third quarter

The overall level of problem borrowing in the US rose slightly in the third quarter, according to a report released by the Federal Reserve Bank of New York on Tuesday. However, the increase is not seen as a sign of a notable deterioration in credit quality.

According to the quarterly Household Debt and Credit Report, the share of problem loans rose by about 0.3 percentage points from the second quarter to 5%. The figure is in line with pre-pandemic levels and well below those seen during the financial crisis about 20 years ago.

The transition into “early” delinquency for mortgages and auto loans, and into “serious” delinquency for credit cards and student loans, improved. The transition of mortgage debt into serious delinquency remains low by historical standards. Donghoon Lee, economic research advisor at the New York Fed, said that although transition rates for housing debt have risen, the overall quality of these loans remains strong.

Researchers said at a briefing that some of the difficulties borrowers face are remnants of the pandemic. They are also linked to looser standards for some types of credit, such as credit cards. In a separate blog post, Lee wrote that credit card delinquency rates rose sharply in 2022-2024, with residents of lower-income neighborhoods hit hardest. He said a larger share of new credit cards during the pandemic went to borrowers with lower incomes and lower credit scores, and that these accounts now show more problems. Lee added that, absent macroeconomic shocks, he expects new credit card delinquencies to continue improving.

Total debt is rising

The report also noted continued stress in student loans. Borrowers returning to payments after the pandemic-era pause continue to struggle. The share of student loans more than 90 days past due was 10.9% of the sector’s debt in the third quarter, up from 10.6% in the second quarter.

Total household debt rose 1.8%, or $334 billion, from the second quarter to $19.1 trillion. Mortgages remain the largest component of debt. Amid growing borrowing for new homes, this category rose by $257 billion to $13.4 trillion. Credit card debt rose by $22 billion to $1.3 trillion, and auto loans rose by $21 billion to $1.7 trillion.