Giving Credit Where Credit Is Due

The most damaged part of the American economy—consumer credit—may finally be recovering.

By Daniel Gross
Posted Wednesday, May 19, 2010, at 1:14 PM ET

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"First in, last out" is a well-known accounting term, and it may also be the right phrase to characterize this economic recovery. Even though the economy began to expand in mid-2009, the sector that led us into the mess—credit—has remained in recession. The conflagration of debt—soured mortgages, defaulted bank loans, Chapter 11 corporations, huge credit-card charge-offs, student loans, auto loans—drove the economy into a deep recession. Now, nearly a year into the overall economic expansion, there are tentative signs that improvement is coming to the stricken world of consumer credit.

Take the biggest component of consumer debt: mortgages. The Mortgage Bankers Association today released its data on the first quarter of 2010. It found the delinquency rate for residential mortgages rose to 10.06 percent in the first quarter, up substantially from the fourth quarter of 2009 and from the first quarter of 2009. But other measures suggest that the mortgage clouds have begun to break. TransUnion, the credit-data firm, reported last week that the mortgage-loan delinquency rate—defined as the percentage of borrowers who are two or more months late—fell in the first quarter of 2010 after three straight years of increases.