Mortgage balances, the largest component of household debt, increased by $230 billion to $10.67 trillion in Q3 2021, according to The Federal Reserve Bank of New York's Center for Microeconomic Data.
According to their recent report, although delinquency rates across all debt products have continued to decline since the beginning of the pandemic, due in part to CARES Act support and lender concessions, 2.7% of outstanding debt was delinquent as of late September.
In addition, the share of mortgages that became delinquent increased slightly to 0.5% from the record low of 0.4% in the second quarter, as forbearance options were no longer widely available. And $302 billion of the $412 billion in delinquent debt is seriously delinquent (at least 90 days late), which includes some debts that lenders have removed from their books but are still trying to collect.
Signs of Trouble on the Horizon for Consumer Debt
A variety of factors could contribute to an increase in consumer collections activity in 2022, including supply-chain driven price increases for a wide array of consumer goods. The rising cost of essential goods can leave consumers less able to manage debts to their lenders.
The end of pandemic-related forbearance and deferral agreements is also likely to drive defaults higher, according to TransUnion.
In recent months, a record number of people quit their jobs – 4.3 million in August and 4.4 million in September – and many did not immediately start new jobs, which reduced their income and hindered their ability to pay down debt. Additionally, surveys show one in four consumers reduced their living standards because of expected price increases, while half of all families in the U.S. expect lower real income next year due to inflation.
Stay Competitive with the Right Software Solution for Debt Collections
The bottom line: a perfect storm for increased loan default is brewing. To stay competitive, lenders need an efficient system of debt recovery.
While lenders have adapted to the changing needs of consumers with data, technology and automation to improve the loan application process, they haven't done the same when it comes to debt recovery.
To plan for a potential spike in collections and keep delinquencies from overwhelming your collections department, your team needs upgraded processes for keeping up with new information, communicating with debtors, and creating payment plans for them.
Cloud-Based Collections Software Saves You Time & Improves Recovery
Enter MeridianLink Collect, which enables banks and credit unions to efficiently manage delinquencies. Since this debt collection software is cloud-based, you don't have to install complicated software or worry about upgrading to the latest version. Collect is so easy to use that everyone on your team can be trained to set it up and manage it.
Collect is designed around the user experience, so your team can spend less time training and more time contacting customers, saving resources and recovering more money.
MeridianLink Collect debt collection software not only replaces tedious workflows of the past with increased automation, sophisticated analytics, and easy-to-use functionality, it also evolves with your financial institution's operations and goals.
For more information on how Collect can help your collections department easily and effectively manage delinquencies, access collection cases from anywhere, and deliver the ultimate user experience, contact one of our debt collection experts today.
Get tips from the experts, register for the upcoming Collections Best Practices webinar, live on February 9, 2022.