Mortgage Trends
HELOC originations continued to benefit from the real-estate recovery and consumer desire to tap into available equity. According to the latest Experian–Oliver Wyman Market Intelligence Report, HELOC originations totaled $37.7 billion during Q1 2016 — an increase of 14% over Q1 2015. As HELOC originations continue their growth trend, lenders can stay ahead of the competition by using advanced analytics to target the right customers and increase profitability. Revamp Mortgage Acquisition Strategies
James W. Paulsen, Chief Investment Strategist for Wells Capital Management, kicked off the second day of Experian’s Vision 2016, sharing his perspective on the state of the economy and what the future holds for consumers and businesses alike. Paulsen joked this has been “the most successful, disappointing recovery we’ve ever had.” While media and lenders project fear for a coming recession, Paulsen stated it is important to note we are in the 8th year of recovery in the U.S., the third longest in U.S. history, with all signs pointing to this recovery extending for years to come. Based on his indicators – leverage, restored household strength, housing, capital spending and better global growth – there is still capacity to grow. He places recession risk at 20 to 25 percent – and only quotes those numbers due the length of the recovery thus far. “What is the fascination with crisis policies when there is no crisis,” asks Paulsen. “I think we have a good chance of being in the longest recovery in U.S. history.” Other noteworthy topics of the day: Fraud prevention Fraud prevention continues to be a hot topic at this year’s conference. Whether it’s looking at current fraud challenges, such as call-center fraud, or looking to future-proof an organization’s fraud prevention techniques, the need for flexible and innovative strategies is clear. With fraudsters being quick, and regularly ahead of the technology fighting them, the need to easily implement new tools is fundamental for you to protect your businesses and customers. More on Regulatory The Military Lending Act has been enhanced over the past year to strengthen protections for military consumers, and lenders must be ready to meet updated regulations by fall 2016. With 1.46 million active personnel in the U.S., all lenders are working to update processes and documentation associated with how they serve this audience. Alternative Data What is it? How can it be used? And most importantly, can this data predict a consumer’s credit worthiness? Experian is an advocate for getting more entities to report different types of credit data including utility payments, mobile phone data, rental payments and cable payments. Additionally, alternative data can be sourced from prepaid data, liquid assets, full file public records, DDA data, bill payment, check cashing, education data, payroll data and subscription data. Collectively, lenders desire to assess someone’s stability, ability to pay and willingness to repay. If alternative data can answer those questions, it should be considered in order to score more of the U.S. population. Financial Health The Center for Financial Services Innovation revealed insights into the state of American’s financial health. According to a study they conducted, 57 percent of Americans are not financially healthy, which equates to about 138 million people. As they continue to place more metrics around defining financial health, the center has landed on four components: how people plan, spend, save and borrow. And if you think income is a primary factor, think again. One-third of Americans making more than $60k a year are not healthy, while one-third making less than $60k a year are healthy. --- Final Vision 2016 breakouts, as well as a keynote from entertainer Jay Leno, will be delivered on Wednesday.
It’s impossible to capture all of the insights and learnings of 36 breakout sessions and several keynote addresses in one post, but let’s summarize a few of the highlights from the first day of Vision 2016. 1. Who better to speak about the state of our country, specifically some of the threats we are facing than Leon Panetta, former Secretary of Defense and Director of the CIA. While we are at a critical crossroads in the United States, there is room for optimism and his hope that we can be an America in Renaissance. 2. Alex Lintner, Experian President of Consumer Information Services, conveyed how the consumer world has evolved, in large part due to technology: 67 percent of consumers made purchases across multiple channels in the last six months. More than 88M U.S. consumers use their smartphone to do some form of banking. 68 percent of Millennials believe within five years the way we access money will be totally different. 3. Peter Renton of Lend Academy spoke on the future of Online Marketplace Lending, revealing: Banks are recognizing that this industry provides them with a great opportunity and many are partnering with Online Marketplace Lenders to enter the space. Millennials are not the largest consumers in this space today, but they will be in the future. Sustained growth will be key for this industry. The largest platforms have everything they need in place to endure – even through an economic downturn.In other words, Online Marketplace Lenders are here to stay. 4. Tom King, Experian’s Chief Information Security Officer, addressed the crowds on how the world of information security is growing increasingly complex. There are 1.9 million records compromised every day, and sadly that number is expected to rise. What can businesses do? “We need to make it easier to make the bad guys go somewhere else,” says King. 5. Look at how the housing market has changed from just a few years ago: Inventory continues to be extraordinarily lean. Why? New home building continues to run at recession levels. And, 8.5 percent of homeowners are still underwater on their mortgage, preventing them from placing it on the market. In the world of single-family home originations, 2016 projections show that there will be more purchases, less refinancing and less volume. We may see further growth in HELOC’s. With a dwindling number of mortgages benefiting from refinancing, and with rising interest rates, a HELOC may potentially be the cheapest and easiest way to tap equity. 6. As organizations balance business needs with increasing fraud threats, the important thing to remember is that the customer experience will trump everything else. Top fraud threats in 2015 included: Card Not Present (CNP) First Party Fraud/Synthetic ID Application Fraud Mobile Payment/Deposit Fraud Cross-Channel FraudSo what do the experts believe is essential to fraud prevention in the future? Big Data with smart analytics. 7. The need for Identity Relationship Management can be seen by the dichotomy of “99 percent of companies think having a clear picture of their customers is important for their business; yet only 24 percent actually think they achieve this ideal.” Connecting identities throughout the customer lifecycle is critical to bridging this gap. 8. New technologies continue to bring new challenges to fraud prevention. We’ve seen that post-EMV fraud is moving “upstream” as fraudsters: Apply for new credit cards using stolen ID’s. Provision stolen cards into mobile wallet. Gain access to accounts to make purchases.Then, fraudsters are open to use these new cards everywhere. 9. Several speakers addressed the ever-changing regulatory environment. The Telephone Consumer Protection Act (TCPA) litigation is up 30 percent since the last year. Regulators are increasingly taking notice of Online Marketplace Lenders. It’s critical to consider regulatory requirements when building risk models and implementing business policies. 10. Hispanics and Millennials are a force to be reckoned with, so pay attention: Millennials will be 81 million strong by 2036, and Hispanics are projected to be 133 million strong by 2050. Significant factors for home purchase likelihood for both groups include VantageScore, age, student debt, credit card debt, auto loans, income, marital status and housing prices. More great insights from Vision coming your way tomorrow!
According to a national survey, many future home buyers do not feel confident about their current credit score status. In fact, 34% of future buyers said their credit score might hurt their ability to purchase a home, and 45% have delayed a purchase to improve their credit score. Many are taking action now to improve their credit. Almost 70% of respondents are paying bills on time, and 60% are working to pay down debt. Additionally, 28% of future homebuyers surveyed are keeping balances low on credit cards, while 15% are taking steps to protect their credit information from identity theft and fraud. Consumers planning to purchase a home should check their credit score now to allow enough time to ensure that the changes they make will be reflected in their score before they meet with a lender. Webinar: Sign up to hear the latest consumer credit trends.
Over the next several years, the large number of home equity lines of credit (also known as HELOCs) originated during the boom period of 2005 to 2008, will begin approaching their end of draw periods. Upon entering the repayment period, these 10-year interest-only loans will become amortized to cover both principal and interest, resulting in payment shock for many borrowers. HELOCs representing $265 billion will reach their end of draw between 2015 and 2018. Now is the time for lenders to be proactive and manage this risk effectively. Lenders with HELOC portfolios aren’t the only ones affected by HELOC end of draw. Non-HELOC lenders also are at risk when consumers are faced with payment shock. Experian analysis shows that it is an issue of consumer liquidity — consumers who reach HELOC end of draw are more likely to become delinquent not only on their HELOC, but on other types of debt as well. If consumers were 90 days past due on their HELOC at end of draw, there was a 112 percent, 48.5 percent and 24 percent increase in delinquency on their mortgage, auto and bankcard trade, respectively. With advanced data and analytics, lenders can be proactive in managing the risk associated with HELOC end of draw. Whether your customer has a HELOC with you or with another lender or is a new prospect, having the key data elements to obtain a full view of that consumer’s risk is vital in mitigating HELOC end-of-draw risk. Lenders should consider partnering with companies that can help them develop and deploy HELOC risk strategies in the near future. It is essential that lenders proactively plan and are well-positioned to protect their businesses from HELOC end-of-draw risk. Experian HELOC end of draw study
According to the latest Experian–Oliver Wyman Market Intelligence Report, HELOC originations came in at $43 billion for Q4 2015 — a 22% increase over Q4 2014. HELOC originations for all of 2015 totaled $160 billion — a 21% increase year over year. As HELOC originations continue their growth trend, lenders can stay ahead of the competition by using advanced analytics to target the right customers and increase profitability. >> Revamp your mortgage and HELOC acquisitions strategies
Electronic signatures and their emerging presence in our Internet-connected world I had the opportunity to represent Experian at the eSignRecords 2015 conference in New York City last week. The concept of electronic signature, while not new, certainly has an emerging presence in the Internet-connected world — as evidenced by the various attendee companies that were represented, everything from home mortgages to automobiles. Much of the discussion focused on the legal aspects of accepting an electronic signature in lieu of an in-person physical signature. The implications of accepting this virtual stamp of approval were discussed, as well as the various cases that already have been tried in court. Of course, the outcome of those cases shapes the future of how to properly integrate this new form of authorization into existing business processes. Attendees discussed the basic concept of simply accepting a signature on an electronic pad as opposed to one written on a piece of paper. That act alone has many legal challenges even though it provides the luxury of in-person authentication through a face-to-face meeting. The complexities and risk increase exponentially when these services are extended over the Internet. The ability to sign documents virtually opens up a whole new world of business opportunities, and the concept certainly caters to the consumer’s need for convenience. However, the anonymity of the Internet presents the everyday challenge of balancing consumer expectations of greater ease of use with necessary fraud prevention measures. Ultimately, it always comes back to understanding who is actually signing that document. All of this highlights the need for robust authentication and security measures. As more and more legal documents and contracts are passed around virtually, the opportunity to properly screen and verify who has access to the documents gets more critical. Many organizations still rely on the tried-and-true method of knowledge-based authentication (KBA), while many others have called for its end. KBA continues to soldier on as an effective way to ensure that people on the other end of the wire are who they say they are by asking questions that — presumably — only they know the answers to. In most cases, KBA is viewed as a “check the box” step in the process to satisfy the lawyers. In certain cases, that’s all you need to do to ensure compliance with legal policy or regulatory requirements. It starts to get tricky is when there’s more on the line than just “check the box” actions. When the liability of first- or third-party fraud, becomes greater than simple compliance, it’s time to implement tighter security, while at the same time limiting the amount of friction caused by the process. Many in attendance discussed the need for layers of authentication based on the type of documents that are being processed and handled. This speaks directly to the point that one size does not fit all. As the industry matures and acceptance of e-signatures increases, so too does the need for more robust, flexible options in authentication. Another topic — that was quite frankly foreign to everyone we talked to — was the need for security around the concept of account takeover. When discussing this type of fraud, most attendees did not even consider this to be a hole in their strategy. Consider this fictional scenario. I’m responsible for mergers and acquisitions for my publicly traded company. I often share confidential information via electronic means, leveraging one of the many electronic signature solutions on the market. I become a victim of a phishing attack and unknowingly provide my login credentials to the fraudster. The fraudster now has access to every electronic document that I have shared with various organizations — most of which have been targets for mergers and acquisitions. Fraudsters are creative. They exploit new technologies — not because they’re trendsetters, but because oftentimes these new technologies fail to consider how fraudsters can benefit from the system. If you are considering adopting e-signature as a formal process, please consider implementing: Flexible levels of authentication based on the risk and liability of the documents that are being presented and what they are protecting FraudNet for Account Takeover, which enhances security around access to these critical documents to protect against data breaches Not only the needs and experiences of your own business, but customer needs as well to enable to the best possible customer interactions If you haven’t considered implementing e-signature technology into your business process, you should — but be sure to have your fraud team present when considering the implementation.
End-of-Draw approaching for many HELOCs Home equity lines of credit (HELOCs) originated during the U.S. housing boom period of 2006 – 2008 will soon approach their scheduled maturity or repayment phases, also known as “end-of-draw”. These 10 year interest only loans will convert to an amortization schedule to cover both principle and interest. The substantial increase in monthly payment amount will potentially shock many borrowers causing them to face liquidity issues. Many lenders are aware that the HELOC end-of-draw issue is drawing near and have been trying to get ahead of and restructure this debt. RealtyTrac, the leading provider of comprehensive housing data and analytics for the real estate and financial services industries, foresees this reset risk issue becoming a much bigger crisis than what lenders are expecting. There are a large percentage of outstanding HELOCs where the properties are still underwater. That number was at 40% in 2014 and is expected to peak at 62% in 2016, corresponding to the 10 year period after the peak of the U.S. housing bubble. RealtyTrac executives are concerned that the number of properties with a 125% plus loan-to-value ratio has become higher than predicted. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration (collectively, the agencies), in collaboration with the Conference of State Bank Supervisors, have jointly issued regulatory guidance on risk management practices for HELOCs nearing end-of-draw. The agencies expect lenders to manage risks in a disciplined manner, recognizing risk and working with those distressed borrowers to avoid unnecessary defaults. A comprehensive strategic plan is vital in order to proactively manage the outstanding HELOCs on their portfolio nearing end-of-draw. Lenders who do not get ahead of the end-of-draw issue now may have negative impact to their bottom line, brand perception in the market, and realize an increase in regulatory scrutiny. It is important for lenders to highlight an awareness of each consumer’s needs and tailor an appropriate and unique solution. Below is Experian’s recommended best practice for restructuring HELOCs nearing end-of-draw: Qualify Qualify consumers who have a HELOC that was opened between 2006 and 2008 Assess Viability Assess which HELOCs are idea candidates for restructuring based on a consumer’s Overall debt-to-income ratio Combined loan-to-value ratio Refine Offer Refine the offer to tailor towards each consumer’s needs Monthly payment they can afford Opportunity to restructure the debt into a first mortgage Target Target those consumers most likely to accept the offer Consumers with recent mortgage inquiries Consumers who are in the market for a HELOC loan Lenders should consider partnering with companies who possess the right toolkit in order to give them the greatest decisioning power when restructuring HELOC end-of-draw debt. It is essential that lenders restructure this debt in the most effective and efficient way in order to provide the best overall solution for each individual consumer. Revamp your mortgage and home equity acquisitions strategies with advanced analytics End-of-draw articles
By: Scott Rhode This is the third and last of a three-part blog series focused on the residential solar market looking at; 1) the history of solar technology, 2) current trends and financing mechanisms, and finally 3) overcoming market and regulatory challenges with Experian’s help. As we’ve discussed in the two previous blogs, the residential solar industry in the US has experienced tremendous growth and much of that growth is attributed to financing. As the financing offers continue to evolve and mature, there are challenges that the industry faces. The first, and most obvious challenge, is that the Solar Investment Tax Credit is set to expire on December 31st, 2016. (To be clear, the credit is not eliminated on Dec. 31, 2016, it is simply planned to be reduced to 10%) Given the state of affairs in Washington, it is unlikely that the tax credit will get extended. This is unfortunate since this tax credit has been a catalyst for investment in this industry, greatly increasing affordability and adoption from the public. Once this incentive expires, the solar companies will need to acquire capital from more traditional sources (Debt markets, securitization, or other third party financing) to fund their growth since the Tax Equity community may no longer be willing to invest. In addition, the expiration of the credit means that panel manufactures must find ways to reduce the cost of production and that finance and installation companies must lower their customer acquisition cost since they are unsustainable in a post-ITC world. A benefit of moving towards other means of funding is that the sophistication level of pre-screening, scoring, and portfolio management should improve dramatically. Today, the Tax Equity community drives all of the credit strategies and those strategies are actually holding solar companies back because of their simplicity. For example, most of the TE investors require that the customer have a 680 FICO score or better in order to get approval. They do not require a debt to income threshold to be met, nor do they look at other attributes or data points. This overly simplistic approach is meant to keep the TE investor out of difficult conversations of being in the “sub-prime” space; however, it greatly limits growth and it turns away good customers. Additionally, this approach does not consider the “essential use” nature of the product. When a customer becomes seriously delinquent, their panels get disconnected and their costs for energy go up more than the cost of their monthly lease payment. This ensures that, unlike an unsecured loan or credit card, the customer is more likely to pay this obligation since it is actually saving them money. This does not mean that the industry can approve everyone; however, it does mean that, with the right decisioning logic and scorecards, they can go much deeper into the credit pool without taking on huge risks. Another challenge for the industry is the shear rate of growth. There are new players in the market every day and even established firms have a hard time keeping up with the growth. This leaves the individual organization and industry at risk for missing critical compliance steps in their operations. Given that these financial instruments are long term in nature and more consumers are adopting this as a means to get solar, it is only a matter of time before the regulators start to look into the practices and operating processes to ensure that all of the applicable regulations are being followed. The industry, as a whole, needs to ensure that they spend a little money now shoring up their compliance instead of paying a hefty fine later. Finally, what happens at the end of the lease? Many of the large players have taken a conservative approach as to how they price the residual amount at the end of term; however, no one really knows what these assets will be worth in 20 years. While many of the panel manufacturers warrant performance for 25, many panels have a shelf-life of 40 years, so how will consumers and the industry behave? What happens if there is a technological breakthrough in 10 years and those old panels are obsolete? At the moment, the industry’s answer to these questions is to set a very low residual which carries risk. Being too conservative here means that your customer’s payment is higher than it needs to be, pricing yourself out of certain markets where the cost of power is less than 20 cents / kwh. As the lease product continues to mature, more focus and emphasis on residual pricing will need to take place to find the right balance for the Consumer and the finance company. It should be said that while there are risks associated with this industry, all markets and new financing products carry risks. The goal of this particular blog is to highlight some of the larger risks that this industry faces. As these are identified, it is incumbent on the industry and partners of the industry to mitigate these risks so that consumers can continue to realize the power of solar. To close this series, I would be remiss if I didn’t offer up Experian’s Global Consultancy solutions to help address the challenges that the industry faces. Our knowledge of best practices in the financial services industry allows us to help those companies in the solar market grow originations responsibly, meet their regulatory requirements, and manage their long term risks with customers. While we cannot solve the funding issues, we can work with organizations and the tax equity community to educate them on the power of decisioning beyond a simple “one-size fits all” score. In addition, our products and data allow for flexibility and certainty, giving the industry an edge in acquiring new customers in a more efficient and less expensive manner. Finally, we can help provide advice and best practices in decisioning, risk management, and regulatory compliance so that the industry can continue to grow and thrive. All in all, we are advocates for the industry and can bring tremendous expertise and experience to help ensure continued success. Solar Financing – The current and future catalyst behind the booming residential solar market (Part II) Solar Financing — The current and future catalyst behind the booming residential solar market (Part I)
By: Scott Rhode This is the second of a three-part blog series focused on the residential solar market looking at; 1) the history of solar technology, 2) current trends and financing mechanisms, and finally 3) overcoming market and regulatory challenges with Experian’s help. Lets discuss the current trends in solar and, more importantly, the mechanisms used to finance solar in the US residential market. As I discussed in the last blog, the growth in this space has been astronomical. To illustrate this growth, there was a recent article in The Washington Post by Matt McFarland, highlighting that solar-related jobs are significantly outpacing the rest of labor market in terms of year over year growth. The article states that since 2010 the number of solar-related jobs has doubled in the US, bring the total number of jobs in this industry to 173,807. While this is still smaller in comparison to other sectors of our economy, it underscores how much growth has occurred in a short amount of time. So what is driving this explosive growth? There are a few factors that should be considered; however, in the residential solar market, financing, is the main catalyst. As you might expect, there are a variety of financial products in the market giving the consumer lots of choices. First, there are traditional loans like home improvement loans, home equity loans, or energy efficiency loans offered by a bank, credit union, or specialty finance company. For homeowners that do not choose to secure their loan against their property, there are a variety of specialty lenders that will offer long-term, unsecured loans that only file a UCC against the panels themselves. For these types of offerings, some specialty lenders will even have special credit plans for the 30% Solar Investment Tax Credit so that the homeowner can have a deferred interest plan with the expectation that once they get the tax credit from the federal government, they will pay off the special plan and all of the deferred interest will be waived. If the customer does not pay in full, the plan rolls to their regular loan plan and the customer has a higher cost of financing. Second, there is a lease product which offers zero to little down and a monthly payment that is less than the savings that the homeowner will experience on their utility bill. Of all the financing options, the lease has been the biggest driver of growth since it offers an inexpensive, no-hassle way to get all the benefits of going solar without breaking the bank. What is unusual to most people that are unfamiliar with this concept is the term of the lease, which is typically 20 years. However, when you consider that most manufacturers warrant their panels for 25 and many have a usable life of 40 years, this term does not seem all that unusual. The benefits of this program look something like this: The homeowner has an average electric utility bill of $350 / month A solar company quotes a customer a savings of $200 / month in the form of a net metering energy credit, so their bill after solar is now $150 / month The lease payment for the installed solar array, metering equipment, and monitoring software is $150 / month The homeowner’s net saving is an average of $50 / month with nothing out of pocket Over the life of the lease, energy prices will increase which will mean more savings over time so long as there are not escalators in the contract that exceed the increase in energy prices The lessor “owns” the equipment and is responsible for maintenance, performance, and insurance With this product comes complexity. Many companies offering this program do not have the cash or the appetite to take on massive debt, so they partner with Tax Equity investors to make this transaction possible. Because of the 30% ITC and accelerated depreciation, this transaction is very favorable for a Tax Equity investor like Google, US Bank, or Bank of America Merrill Lynch. There are a number of structures they can use; however, the Sale-Leaseback structure is the easiest and most efficient way to fund the transaction. While this is not “known” to the end customer, it is important because the Tax Equity Investor effectively owns the asset and has the final say in setting credit policy. This transaction does require that the developer have a stake as well; however, many of the developers go to the debt market for “back leverage” on their stake so that they can reduce the impact to their balance sheet. This complexity carries a cost, as the cost of capital is higher than most traditional loan products from established financial services firms. That said, the fact that the lease allows the customer to monetize the tax credit and accelerated depreciation in the amount financed, balances out the higher costs of capital. In the next blog we will touch more on the challenges this product, in particular, has in the market. Last, but not least, there is another mechanism gaining popularity in the market. This concept is known as community solar. One of the obstacles of the lease and Tax Equity arrangement is that the lease is only available to single family residence homeowners and, if they have multiple homes, only the homeowner’s primary residence. That means that people who rent, own a condo, own a vacation home, or own a small business do not qualify for this type of lease. As a result, community solar has become a great option. With community solar, the panels are put in an ideal location for maximum exposure to the sun and they often produce 10-15% more power than panels on a rooftop. Portions of this solar farm can be sold, rented, or sublet to consumers regardless of their living situation. As the panels produce electricity, that power gets sold to the local utility and the customer gets money from that utility that shows up as a credit on their next bill. In this structure, the customer is not required to put money down in most cases and they are signing up for a specific term. Like a rooftop lease, this structure often has a Tax Equity investor that funds the project. Again, this allows them to take the 30% ITC and accelerated depreciation which, in turn, gets monetized and lowers the costs of construction. In the final installment of this blog series, I will discuss some of the challenges that this market faces as the ITC expiration date approaches and the market becomes more mature. Leasing is driving the market, so if the ITC does not get renewed, the market will need to have a plan in place to find other innovative ways to keep solar affordable so more consumers can realize the benefits of going solar. Solar Financing — The current and future catalyst behind the booming residential solar market (Part 1)
By: Scott Rhode This is the first of a three-part blog series focused on the residential solar market looking at; 1) the history of solar technology, 2) current trends and financing mechanisms, and finally 3) overcoming market and regulatory challenges with Experian’s help. Most people tend to think of the solar industry as a recent, and not so stable, market phenomenon. However, the residential solar industry is still gaining traction as component prices come down. For more than two thousand years man has been trying to harness the sun’s energy and power. In fact, architects and city planners in early civilizations would also look to the sun when designing dwellings, buildings and bathhouses, so that they could capture as much of the sun’s energy to heat their homes and the water they used. Our ancestors knew that the sun, unlike any other resource, was a consistent and powerful source of energy that fueled life. Fast forward to the late 19th and early 20th centuries where renowned scientists in the US and across the globe started looking at ways to harness the sun’s energy to generate electricity, and the birth of the modern solar industry was here. By the mid 1950’s, US architects were trying to incorporate the power of the sun in their designs so that heating the water and commercial office space could be done without heavy use of electricity. One architect, Frank Bridgers, was so successful in using this technology that his building still continues to operate this way today. In addition, many companies like Bell Labs, Western Electric, and the US Signal Corp Laboratories started to develop photovoltaic cells that power the panels that we use today. These early cells, operating at 7-11% efficiency (This is the measurement of how efficient the cell is at converting solar radiation to electricity), gave life to solar powered electronics, lights, and panels used by the burgeoning space program to power satellites orbiting earth. In reaction to the growing possibilities and the broader oil crisis in the late 1970’s, the US Department of Energy created what would later become the National Renewable Energy Laboratory enabling the federal government to use its resources to help grow the industry and foster technological innovations to improve cell efficiency. Throughout the 1980’s, 90’s, and early 2000’s, the industry starts to take root with utilities and mainstream energy providers as they look to the sun to diversify their energy sources away from coal, gas, and oil. This adoption leads to a push by the US Department of Energy to have “One million Solar Roofs” in the US so that individual home owners can realize the benefits of going solar. Soon, retailers like Home Depot started selling panels in their stores for customers to install themselves for “off-grid” properties or other uses. While this allowed a homeowner to use solar, costs are still so high that solar is only available to a select few and, as a result, not competitive with traditional methods of producing energy. In order to incent homeowners to invest in solar, the US Government created the Solar Investment Tax Credit in 2005. This tax credit allows homeowners to get a credit of 30% of the fair market value of the system they have installed on their roof. As a result of this and local incentives from municipalities and utility companies, residential solar installations have grown 1,600% over the last ten years, representing an annual CAGR of 76%. In fact, through the first half of 2014, 53% of all new electric capacity is from solar, making it the fastest growing source of energy in the market.* Since this tax incentive is unlikely to be renewed after it expires, the industry set out to solve the cost issue in order to manufacture and produce highly efficient and durable panels for individual Consumers that could bring the costs to produce down to parity with traditional power. In this endeavor, the manufactures have poured significant resources into research and development, pushed their manufacturing processes towards ever higher levels of efficiency, and used the latest technology to significantly reduce costs to produce panels that now range from 18-23% cell efficiency. Since 2010 the average price of a panel has come down by 64% and the industry continues to push to find ways to make solar more affordable. This is especially important given that the tax credit expires on December 31st of 2016. In the next blog in the series, I will talk about solar financing and the current industry trends. Financing, as you would expect, has been and will continue to be critical to growth in this space so that more homeowners can afford to move to solar as their primary energy source. As such, the methods used to acquire, originate, and serve these customers must evolve in order for the industry to sustain the impressive growth rates mentioned earlier in this blog. Solar Financing – The current and future catalyst behind the booming residential solar market (Part II)
Experian–Oliver Wyman data reports $120 billion in new home-equity credit loans in past year; Q2 2014 saw new mortgage originations totaling $292 billion Mortgage origination volumes saw an increase of 15 percent in Q2 2014. Home-equity line of credit (HELOC) lending saw the biggest gains, according to Experian, the leading global information services company, as reported in its quarterly Experian–Oliver Wyman Market Intelligence report. Is the home refinancing boom over? “Home lending had an incredible two-year period from Q2 2011 to Q2 2013, with $4 trillion in mortgage origination volume; 71 percent of that, or $2.9 trillion, came from home refinancing,” said Linda Haran, senior director of product management and strategy for Experian Decision Analytics. “A look behind those numbers tells us that the total dollars originated over the past four quarters are about $1.3 trillion versus $1.8 trillion, showing a 30 percent decrease in annual origination volumes from the refinancing boom.” “However, those last four quarters show us that the mix of purchase-to-refinance volume has shifted to a fifty-fifty split between refinance and purchase volume activity. This equates to new purchase activity increasing by 22 percent in Q2 2014 from last year, signaling that consumers are getting back into the market. In the long term, this appears to set up the market for continued purchases into spring and summer of 2015.” $35 billion in new HELOC lending from Q2 2014 Home-equity lending increased 25 percent in Q2 2014 totaling $35 billion in new HELOC originations compared with Q2 2013. Looking at the past 12 months, HELOCs totaled $120 billion in new originations, representing a 27 percent increase compared with the previous 12 months. Experian–Oliver Wyman Market Intelligence Report - Q2 2014 from Experian Decision Analytics HELOC lending growth seen across all regions Double digit growth was seen in all regions compared to the numbers reported one year ago. The two regions that led the trend in increasing HELOC origination volumes were the West Coast and the Northeast — with 27 percent and 15 percent year-over-year growth, respectively.California accounted for the highest volume of HELOC dollars originated in Q2 with $5.9 billion, followed by New York with $2.2 billion and Pennsylvania with $2.0 billion. Make sure to join us for the Q3 2014 Experian–Oliver Wyman Market Intelligence Report webinar. For even more HELOC analysis, please read the "Impact of the revived HELOC trend" post. About the data The data for this insight and analysis was provided by Experian’s IntelliViewSM product. IntelliView data is sourced from the information that supports the Experian–Oliver Wyman Market Intelligence Reports and is accessed easily through an intuitive, online graphical user interface, which enables financial professionals to extract key findings from the data and integrate them into their business strategies. This unique data asset does this by delivering market intelligence on consumer credit behavior within specific lending categories and geographic regions.
By: Kari Michel The topic of strategic default has been a hot topic for the media as far back as 2009 and continues as this problem won’t really go away until home prices climb and stay there. Terry Stockman (not his real name) earns a handsome income, maintains a high credit score and owns several residential properties. They include the Southern California home where he has lived since 2007. Terry is now angling to buy the foreclosed home across the street. What’s so unusual about this? Terry hasn’t made a mortgage payment on his own home for more than six months. With prices now at 2003 levels, his house is worth only about one-half of what he paid for it. Although he isn’t paying his mortgage loan, Terry is current with his other debt payments. Terry is a strategic defaulter — and he isn’t alone. By the end of 2008, a record 1 in 5 mortgages at least 60 days past due was a strategic default. Since 2008, strategic defaults have fallen below that percentage in every quarter through the second quarter of 2010, the most recent quarter for which figures are available. However, the percentages are still high: 16% in the last quarter of 2009 and 17% in the second quarter of last year. Get more details off of our 2011 Strategic Default Report What does this mean for lenders? Mortgage lenders need to be able to identify strategic defaulters in order to best employ their resources and set different strategies for consumers who have defaulted on their loans. Specifically designed indicators help lenders identify suspected strategic default behavior as early as possible and can be used to prioritize account management or collections workflow queues for better treatment strategies. They also can be used in prospecting and account acquisition strategies to better understand payment behavior prior to extending an offer. Here is a white paper I thought you might find helpful.
By: Kari Michel In January, Experian announced the inclusion of positive rental data from its RentBureau division into the traditional credit file. This is great news for an estimated 50 million underbanked consumers - everyone from college students and recent graduates to immigrants - to build credit with continuous on-time rental payments. With approximately 1/3 of Americans renting, lenders who are using VantageScore will benefit from the inclusion of RentBureau data into the score calculation. VantageScore from Experian is able to both enhance its predictive ability for those that can already be scored as well as provide scores for those that previously could not be scored. With the inclusion of RentBureau data, 34% of thin file consumers increased their score from an ‘F’ (VantageScore 501 – 599) to a ‘D’ (VantageScore 600 – 699). For those consumers that did not have a prior credit history, 70% of them were able to be scored after the inclusion of RentBureau data into the credit repository. As a result, fewer consumers will get a “no hit” returned to lenders during a credit inquiry. Lenders will now have a comprehensive understanding of a consumer’s total monthly obligations to assist with offering credit to emerging consumers.
As our newly elected officials begin to evaluate opportunities to drive economic growth in 2011, it seems to me that the role of lenders in motivating consumer activity will continue to be high on the list of both priorities and actions that will effectively move the needle of economic expansion. From where I sit, there are a number of consumer segments that each hold the potential to make a significant impact in this economy. For instance, renters with spotless credit, but have not been able or confident enough to purchase a home, could move into the real estate market, spurring growth and housing activity. Another group, and one I am specifically interested in discussing, are the so called ‘fallen angels’ - borrowers who previously had pristine track records, but have recently performed poorly enough to fall from the top tiers of consumer risk segments. I think the interesting quality of ‘fallen angels’ is not that they don’t possess the motivation needed to push economic growth, but rather the supply and opportunity for them to act does not exist. Lenders, through the use of risk scores and scoring models, have not yet determined how to easily identify the ‘fallen angel’ amongst the pool of higher-risk borrowers whose score tiers they now inhabit. This is a problem that can be solved though – through the use of credit attributes and analytic solutions, lenders can uncover these up-side segments within pools of potential borrowers – and many lenders are employing these assets today in their efforts to drive growth. I believe that as tools to identify and lend to untapped segments such as the ‘fallen angels’ develop, these consumers will inevitably turn out to be key contributors to any form of economic recovery.
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