Watch For Reversal in Loan Delinquency and Charge-Off Rates, Agricultural Loan Charge-Off Rate at Record Low

First off, I'm assuming that a normal credit cycle still exists after the too-big-to-fail banking system, asset prices, and the economy were bailed out with trillions of dollars. With that said, I'd watch for a potential reversal in loan charge-off and delinquency rates at commercial banks since they've been trending down rapidly since Q4 2009/Q1 2010. What's interesting is delinquency rates on credit card loans and business loans are currently at historic lows, while the delinquency rate on single family residential mortgages is still around its historic high. Unfortunately, those three rates only go back to the 1980s or 1990s, so data is limited.

I also included a chart of charge-off rates. The trends look similar, but one stood out to me - the charge-off rate on loans that finance agricultural production. It made a new record low in Q1 2013, below the 2005 low (see the purple line on the second chart). Agricultural loans had trouble in the 1980s it looks like. And regarding farmland loans today, "farmland prices in the U.S. have risen sharply in recent years" (chart via Deutsche Bank Research). So in those specific cases, keep an eye on the commodity supercycle and interest rates.

It would be nice if the FRED database had student debt charts available. According to RT, 11% of student loans outstanding are "seriously delinquent." Doesn't sound good.

"According to the new report, eleven per cent of school loans - one hundred and ten billion dollars' worth - are now seriously delinquent, meaning at least 90 days past due. That is a sharp increase from the 6 per cent reported in the first quarter of 2003."

The first chart shows loan delinquency rates and the second chart shows loan charge-off rates (key below). Click the chart for a larger view.

Source: St. Louis Fed (FRED Database)

Single-family residential mortgages = blue
Commercial real estate loans = red
Business loans = green
Credit card loans = orange
Farmland loans = black
Agricultural production loans = purple

*The credit card loan charge-off rate uses the right axis.

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