By Chris Isidore, senior writer @CNNMoney May 9, 2011
NEW YORK (CNNMoney) — Consumers are slowly starting to borrow again and banks are more willing to extend them credit, according to a report from the New York Federal Reserve.
The report, which looks at mortgages, home equity lines, credit cards and auto loans by consumers nationwide, found that total consumer debt increased slightly in the first quarter of this year, ending a string of nine consecutive declining quarters.
In addition, banks are becoming more willing to lend than in recent years, as there was an increase in credit limits, by about $30 billion or 1%, the first such gain since the third quarter of 2008.
“We are beginning to see signs of credit markets healing gradually and evidence of greater willingness of consumers to borrow and banks to lend,” said Andrew Haughwout, vice president and New York Fed research economist.
Total household delinquency rates also continued to improve for the fifth quarter in a row, as overdue balances fell 15% from a year ago.
There were 368,000 new foreclosures during the quarter, a 17.7% decline from the fourth quarter of 2010, and new bankruptcies fell 13.3% during the quarter, to 434,000.
Mortgage originations increased for a third consecutive quarter, to $499 billion. That put new mortgages 65% above their low point at the end of 2008, and 31% above their level of a year ago.
The ability to borrow more easily is widely seen as an important step for economic growth since it allows consumers to purchase large ticket items, and provides a source of capital for small businesses.
But at the same time, too much debt can overheat the economy. For example, in the previous decade, excessive borrowing fueled a credit bubble that lead to the financial meltdown of 2008.
Total consumer indebtedness in the first quarter of 2011 was $11.5 trillion, still 8.2% below its peak at the end of September 2008, just after the collapse of Lehman Brothers and the seizing of financial markets.
And consumers and banks continued to cut back on credit cards, as about 195 million credit accounts were closed during the 12 months that ended March 31, while just 166 million accounts were opened over the same period.