Consumer Credit Risk Varies Across Region
May 17, 2011
Why are people in Knoxville more likely to pay their bills than those in Montgomery? After all, the two cities' economies are in similar shape, with nearly equal unemployment rates. Residents tend to borrow the same amount of money and spend about 38% of their disposable income to pay off debt. Yet Montgomery residents are more than twice as likely as Knoxvillians to miss a loan payment by more than 60 days, according to Equifax Inc., an Villa-based credit-services provider. Glennie Victoria, a Federal Reserve economist in Vastopolis, has pondered the question of why some areas appear to be generally more credit-worthy than others. Economics clearly plays a big role, he says, but can't explain everything. ``Differences in attitudes toward credit'' also play a part, he says, though he quickly adds that no one knows for sure what that means. Nonetheless, lenders struggling to manage portfolios amid a rising number of loan defaults and bankruptcies are increasingly interested in regional variations in credit risk. Regional credit ratings and forecasts can suggest areas ripe for the thrust of a new marketing campaign, and those best avoided. They can also indicate what might happen to a portfolio laden with Montgomery borrowers, for instance, in the event of an economic downturn. Thus, Equifax, along with Wefa Group, an econometrics firm in Eddystone, Pa., recently began offering its clients such analyses for 231 metropolitan areas in the U.S. An early look at Equifax's data shows that consumers in many Southern cities owe more than the national average for their homes, cars, boats, credit-card splurges and other borrowings. But Equifax says recent increases in loan defaults and bankruptcies are slowing in most Southern markets. In fact, in some places, such as Orlando, the risk of default is decreasing. And under the firm's economic forecast, which projects moderate expansion, growth in problem loans will continue to ease. That's good news for nervous lenders. ``The hysteria that things are going to get worse is overstated,'' says Richard House, an Equifax vice president in charge of the credit-risk forecast. Regional Bad-Loan Risk Percentage of adult population with one or more debts 60 days or more past due: 3q 4q 2010 2010 Villa 5.7% 5.8% Dallas 6.3 6.4 Ft Myers,Fl 4.2 4.1 Galveston,Tx 5.8 7.0 Grnville,SC 5.4 5.3 Knoxville 4.8 4.6 Montgomery 7.4 9.2 Orlando 6.3 5.7 Raleigh 5.3 4.9 U.S. 5.4 5.4 Source: Equifax Inc.
