New Consumer Credit Default Index to Standardize Late Payment Data

Standard and Poor’s and Experian have teamed up to offer a series of new U.S.-based credit default indices designed to provide banks and ARM companies with a standardized snapshot of American debt repayment behavior.

Fitch and Moody’s already offer similar services, but an Experian executive told insideARM that the S&P/Experian Consumer Credit Default Indices will use a standard definition of a default and will seek to measure the balance-weighted proportion of consumer credit accounts that go into default for the first time each month.

”Previous solutions leverage Federal Reserve metrics or specific sample mortgages or consumers defaults from securitized loans,” said Ethan Klemperer, general manager of Experian Capital Markets. The Federal Reserve information tends to be revised for a couple of months after initial release and the sample mortgages and other default information that the other reports use all have different definitions of default, depending on the supplier of the base information, according to Klemperer.

The S&P/Experian solution uses a standard definition of default: an account that is 90 days past due.

“We looked at data and 90 days seems to be the optimal time frame,” Klemperer said. “People who are 90 days late have already missed three payments, so they’re not likely to come back to current. If you wait if they go into foreclosure (for mortgages), that takes up to six months. By that time, the data is already stale.”

“Experian is committed to providing the market with transparent and relevant information regarding the health of the U.S. consumer credit population,” Klemperer added. “The S&P/Experian Consumer Credit Default Indices offer a clean, true measure of loan losses worthy of being the standard benchmark for analyzing the changing payment behaviors of borrowers.”

The indices will be calculated based on data from Experian’s consumer credit database. This database includes individual consumer loan and payment data submitted by lenders to Experian every month, with a total of about $11 trillion in outstanding loans from 11,500 lenders. Lenders report to Experian based on billing cycles, which are spread throughout a month. The indices will rely on the data in the system by the monthly “archival date,” the final Saturday of each month. The indices will be reported on the third Tuesday of the following month.

There will be four “headline” indices determined by loan type, and a composite index: S&P/Experian Auto Default Index, S&P/Experian First Mortgage Default Index, S&P/Experian Second Mortgage Default Index, S&P/Experian Bankcard Default Index, and S&P/Experian Consumer Credit Default Composite Index. The balance-weighted Composite Index will measure default rates across all four loan types. These indices will be publicly available, with the first to be reported on May 18th. The first report will also include some historical perspective gleaned from five years of data in the Experian database, Klemperer said.

Additionally, granular indices by geography (at the Metropolitan Statistical Area, state, census division and census region levels) will be available for a fee, as well as custom indices that can be created based on specific client requirements, also for a fee.