The doom and gloom data arrive in higgledy-piggledy fashion on a daily basis, and it can be difficult for lenders – particularly in the housing market – and their credit risk managers to wrap their heads around all of it. 

The thrust is this: The economy is a non-mover; consumer confidence is at historic lows, judging by two prominent monitors; and foreclosures and delinquencies on mortgage loans are increasing each quarter. This last trend is expected to extend over many more months.

The U.S. Department of Commerce's Bureau of Economic Analysis at the end of April reported that gross domestic product stalled at a 0.6% growth rate during the first quarter of 2008, showing zero improvement from the fourth quarter of 2007.

Payroll employment in the United States declined by 232,000 jobs in the first quarter and the March unemployment rate climbed to 5.1%.

The economy is having a deleterious effect on consumer confidence, which sank to a 26-year low in the April survey by Reuters and the University of Michigan. Its Index of Consumer Sentiment sunk to 62.6 in April from 69.5 in March and 87.1 in April 2007. The most recent peak, 96.9, occurred in January 2007.

The Reuters/Michigan Index of Consumer Expectations was 53.3 in April, down from 60.1 in March and 75.9 in April 2007. From the January 2007 peak, when this measure hit 87.6, the Expectations Index has fallen 39%.

The Conference Board's Consumer Confidence Index, which had declined sharply between February and March to 65.9, fell further in April to 62.3.

"This continued weakening [in Consumer Confidence] suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further," says Lynn Franco, director of The Conference Board's Consumer Research Center.

Looking ahead, consumers' outlook for the economy, the job market and their income prospects "remains quite pessimistic," says Franco.

Foreclosure filings were submitted on 649,917 properties during the first quarter, rising 23% from the fourth quarter and 112% from the first quarter of 2007, reports RealtyTrac.

"Foreclosure activity increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation's 100 largest metro areas," RealtyTrac CEO James J. Saccacio says.

Federal, state and local governments and community groups are doing what they can to help struggling homeowners but loan workouts are few and far between, even according to lenders' own data. Saccacio worries that stopgap measures "could be simply deferring another flood of foreclosures," which would mean extending the "length of time required for the market to recover."

One in 10 Americans with a mortgage, or roughly 10 million adults, report being late or missing a mortgage payment in the last year, according to a survey by the National Foundation for Credit Counseling (NFCC) and broadcaster MSN Money.

While a majority of Americans surveyed pay their bills on time and have no debts in collection, 7% or roughly 15 million adults are either getting calls from collectors or are seriously considering filing for bankruptcy, the NFCC survey shows.

Two of the three major U.S. credit bureaus also conducted studies this spring.  TransUnion reports that mortgage delinquency – the portion of borrowers 60 or more days past due – hit a national average of 2.99% in the fourth quarter, up almost 17% over the third quarter.

The national 60-day mortgage borrower delinquency rate is expected to continue to rise throughout 2008 to 4.0% or higher by year's end, TransUnion projects, based on an analysis of 27 million consumer records containing more than 200 credit variables that illustrate consumer credit usage and performance.

Looking at even more recent trends, Experian Consumer Direct found that the number of severely delinquent mortgage accounts grew 15% between February 2007 and February 2008.

"Changes in the housing market have affected many homeowners across the nation," says Ty Taylor, group president of Experian Interactive. The states with the most severely delinquent mortgage accounts were California, where 12.4% of mortgage accounts were significantly past due; and Florida, where 8% of accounts were severely delinquent.

The nation's largest non-bank mortgage lender, Countrywide Financial Corp., foreclosed on $505 million worth of real estate in the first quarter, up 28% from the fourth quarter. Total nonperforming assets amounted to $4.59 billion, up 40% from $3.28 billion in the prior quarter. The 90+ day delinquency rate on Countrywide loans was 4.6% during the first quarter, vs 1.0% during first-quarter 2007.

One-third of executives at the top 50 U.S. banks and credit card issuers describe the credit crunch as a systemic threat or a severe challenge to their institutions, according to a survey conducted by TowerGroup for Fair Isaac Corp., creator of the FICO score.

"No one doubts the seriousness of the current credit crisis, but it's noteworthy that the largest financial institutions are more likely than others to characterize its impact as severe or worse," says Theodore Iacobuzio, managing director and practice leader for TowerGroup.

"The fact that these larger institutions took on more risk in recent years and are feeling more pressure now that delinquencies are rising and defaults are increasing certainly has something to do with that perspective," he remarks.

More than half the surveyed executives cited increased credit delinquencies as the biggest challenge they expect to face in the next two years.

The survey, conducted in March, consists of responses from 108 participants – senior risk management and credit executives – at the top 50 U.S. banks and credit card issuers.

Virtually every lender discussing their first-quarter profits and losses talked about tightening credit underwriting standards and pulling back on lending, but that is clearly a case of closing the barn door well after the livestock has been let loose. The bankers – and their customers – will be dealing with mortgage market fallout for some time yet. 

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