Young People Taking Fewer Auto Loans: NY Fed

NEW YORK ( TheStreet) -- Auto loan originations in the second quarter reached their highest level in six years, according to the Federal Reserve Bank of New York's quarterly survey on household and consumer debt.

New auto loans increased $14 billion in the second quarter to $92 billion, the highest since the third quarter of 2007.

Total auto loan balances increased $20 billion from the previous quarter to $800 billion, the ninth consecutive quarterly increase. The total is at the highest level in five years.

The recent resurgence in auto loans has raised concerns about an erosion in underwriting standards that could pave the way for a rising market for subprime auto loans.

But so far, there isn't evidence to suggest ta problem, according to the NY Fed.

Delinquency rates are lower, with the percent of auto loan balances that are 90 or more days past due falling to to 3.6 percent in the second quarter, the lowest level in five years.

And there isn't a disproportionate or unusual volume of loans being issued to riskier borrowers. "While originations to borrowers with the lowest credit scores have increased, they are just recently approaching historically 'normal' levels and are below those that we saw during the boom years leading up to the crisis," the researchers said.

About 23% of new auto loans (calculated as a share of aggregate loan balances originated) were issued to borrowers with credit scores under 620 in the second quarter, compared to shares of 25% to 30% historically. Meanwhile, the share of borrowers with credit scores over 720 peaked at over 50% during the recession and is about 45% now.

A more troubling trend is the decline in auto debt among young people, particularly those with student loans. Historically the oldest people borrowed the least auto debt; now it is the youngest.

18 to 29-year-olds are borrowing less frequently for car purchases than in the past, with originations averaging less than one million a quarter.

Instead, the 60 to 69-year-olds took out more loans, though this is likely explained by the growth in population in this category, with baby boomers entering retirement.

The report showed that total household debt fell 0.7% from the previous quarter to $11.15 trillion, about 12% below peak.

In the third quarter of 2008, household debt stood as high as $12.68 trillion.

Mortgage debt, the largest category of household debt, continued to decline, dropping by $91 billion. Non-housing debt increased, with student loan debt increasing $8 billion to $994 billion and credit card balances rising $8 billion to $668 billion.

-- Written by Shanthi Bharatwaj in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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