These Americans are struggling to pay their bills on time: ‘Financial stress appears to have risen,’ New York Fed says

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Low-income borrowers are increasingly missing payments on their car loans and credit cards and may have missed the boat on ultralow mortgage rates, according to a new report from the Federal Reserve Bank of New York.

The New York Fed used anonymized Equifax
credit-report data as well as income data from the 2016 Census Bureau American Community Survey. The report is the third in a series looking at how low-income households handle their finances and access credit. 

“Low- and moderate-income debt holders are struggling in today’s post-pandemic period,” the authors said in the report, published on Thursday. “We see this in rising early delinquencies in auto and credit-card debt.”

The authors found that low-income borrowers began missing payments on their car loans and credit-card debt in 2022, pushing delinquencies up beyond prepandemic levels.

“Financial stress appears to have risen,” the authors said in the report.

The median car-loan origination balance for a borrower in a low-income area was $24,700 in the third quarter of 2023, compared with $18,500 at the end of 2019.

Additionally, many low-income households missed out on the mortgage-refinancing boom during the pandemic, when many homeowners jumped at the chance to take advantage of historically low mortgage rates, the New York Fed authors said.

“Most low-income homeowners did not refinance during the mortgage-refinancing boom, missing an opportunity to lower monthly mortgage payments,” they noted.

“Lower-income areas barely saw any increase in refinanced mortgages” compared with borrowers in higher-income areas, the New York Fed said.

Only 24% of mortgages in low-income areas were refinanced between 2020 and 2021, the report found, far lower than the 42% of mortgages in high-income areas.

About 23% of homeowners in the U.S. have a mortgage rate below 3%, according to government data analyzed by Redfin, and that rate was likely obtained either before or during the pandemic. Current mortgage rates are far higher, averaging 6.6%, according to Freddie Mac.

Lower-income areas also have lower levels of homeownership, the New York Fed said, and the share of the population with a mortgage is lower. 

And in low-income areas, 57% of households are rent-burdened, versus 44% of households in high-income areas. Households are defined as rent- burdened if they spend more than 30% of their monthly income on rent.

Related: Is America’s record credit-card debt a red flag for the economy? ‘The trends are definitely not good.’

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