MReport September 2020

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M R EP O RT | 53 SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Banks Report: Billions of Dollars in Loan Repayments Deferred The big banks set aside more than $32 billion for loan losses in Q2. A s homeowners and other borrowers seek debt re- lief during the coronavi- rus pandemic, America's four largest banks report at least $151.5 billion in loans with payments in deferral at midyear, Bloomberg L.P. reported. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. disclosed defer- ral details within their second- quarter filings with the U.S. Securities Exchange Commission. "Uncertainty over the length of the pandemic and resulting eco- nomic crisis have made it difficult for banks to determine how many loans are likely to sour," noted Stephen Lubbers for Bloomberg L.P. "JPMorgan, Bank of America, Citigroup and Wells Fargo set aside more than $32 billion for loan losses in the second quarter, close to a record, signaling that relief programs may not be enough to stave off a flood of bad debt." Deferral programs differ among account types and banks. JPMorgan Chase & Co., for example, has offered clients rolling, three-month deferrals for up to a year on residential mortgages. The four biggest U.S. banks vary on how they report payment deferrals and loan modifications, and the total balance of financing with deferred payments is likely higher than the aforementioned $151.5 billion. Deferrals on residential mort- gages and home-equity loans were a common theme for all four banks. The majority of Wells Fargo's consumer deferrals were on a combined $35 billion of first and second mortgages, representing 12% and 10% of each loan type, respec- tively. Almost 9% of JPMorgan's residential real estate portfolio was subject to payment deferrals, rep- resenting nearly three-quarters of the total $28.3 billion of consumer loans in deferral. Wells Fargo reported $44.2 bil- lion of consumer loans in deferral at midyear. The bank reported only that it modified $38.2 billion of commercial loans without dis- closing the amount remaining in deferral by June 30. At Citigroup, consumer credit cards represented the largest portion of modified loans, with $6.9 billion of debt enrolled in deferral pro- grams, or 5% of its North American credit-card business. The bank mod- ified about $20 billion of consumer loans globally as of June 30. Bank of America, which provided figures as of July 23, was deferring payments on $7.7 billion in commercial loans and $28.5 billion in consumer and small-business debt. Last spring, reportedly, millions of households narrowly avoided financial devastation thanks to rapidly rolled-out forbearance programs, part of an effort to avert a massive wave of defaults by borrowers who began losing income when states locked down commerce to slow the virus. Less Consumer Spending Leads to Q2 Household-Debt Decline Temporary COVID-19 relief measures may mask the very real financial challenges that Americans may be experiencing. T otal household debt de- creased for the first time since 2014 in Q2, includ- ing the steepest decline in credit card balances seen in the history of the data. In its Quarterly Report on Household Debt and Credit, The Federal Reserve Bank of New York's Center for Microeconomic Data showed total household debt decreased by $34 billion (0.2%) to $14.27 trillion in the second quarter of 2020. This marks the first decline since the second quarter of 2014 and is the largest decline since the second quarter of 2013. Mortgage balances—the largest component of household debt— rose by $63 billion in the second quarter to $9.78 trillion. Mortgage originations, which include mortgage refinances, reached $846 billion, the highest volume seen since the refinance boom in 2013. Credit card balances fell by $76 billion in the second quarter, reflecting the sharp decline in overall consumer spending due to the COVID-19 pandemic and related social distancing orders. This was the steepest decline in card balances seen in the history of the data. In total, nonhousing balances (including credit card, auto loan, student loan, and other debts) saw the largest drop in the history of this report, with an $86 billion decline. Aggregate delinquency rates dropped markedly in the second quarter, reflecting increased up- take of forbearances, which were provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Note that ac- counts in forbearance are typically marked as "current" on consumer credit reports. The share of mortgages in early delinquency that transitioned to "current" rose to 61.1%, while there was a decline in the share of mortgages in early delinquency whose status wors- ened during Q2 2020. Protections afforded to American consumers through the CARES Act have prevented large- scale delinquency from appearing on credit reports and damaging future credit access, said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. "However," he added, "these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic and the sub- sequent economic slowdown." The report further details housing and student debt as well as account closings, bankruptcy notations, and credit inquiries.

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