The St. Louis Fed’s FRED Blog has released an interested piece showing the geographical distribution of America’s subprime borrowers.
As author Maximiliano Dvorkin writes, most economists agree the financial sector and high levels of household debt played an important role in the last recession. But since 2008, the levels of both household debt relative to income and debt service payments relative to income have fallen. The reasons for the fall appear driven by a lower demand for credit by borrowers or stricter lending requirements by lenders. Nonetheless, an important implication of lower levels of debt and lower debt payments is an improvement in borrowers’ credit scores, as these factors would translate into less debt and fewer missed payments, which have an important weight in how these scores are computed.
The two graphs show the percentage of the population with a credit score below 660 in each U.S. county in 2009 and 2016. A person with a score below 660 will have a harder time securing credit from a lender and may have to pay a higher interest rate if a loan is secured, then again as reported earlier today, adjustments to how the FICO score is being calculated will provide an artificial boost to some 12 million Americans in the coming months.
Comparing 2009 and 2016, we see that the percentage of the population with a subprime credit score has decreased, consistent with some of the recent changes described above.
In addition, the graphs show that counties in the south and southeast have a larger-than-average concentration of subprime population. That said, the graphs clear do not account for impaired student loans which do not for the most part affect FICO scores, and which at $1.4 trillion, have become by far the biggest burden on the US consumer, and whose adverse impact the government has been actively coverng up. A recent breakdown of average student debt per borrower by state from the Dallas Fed shows a rather different distribution. One wonders what the above maps would look like if they incorporated the amount of delinquent student debt as well.