Tag: credit trends
Consumer debt for every major consumer lending category has decreased over the past few years, except for student loans.
According to the latest Experian-Oliver Wyman Market Intelligence Report, home equity line of credit (HELOC) originations warmed up significantly heading into summer.
Are you sure you are making the best consumer credit decisions? Given the constantly evolving market conditions, it is a challenge to keep informed. In order to confidently grow and manage the bottom line, organizations need to avoid these four basic risks of making credit decisions with limited trend visibility. Competitive Risk - With limited visibility to industry trends, organizations cannot understand their position relative to peers. Product Risk - Organizations without access to the latest consumer behaviors cannot identify and capitalize on emerging trends. Market Risk - Decisions suffer when made without considering market trends in the context of the economy. Resource Risk - Extracting useful insights from vast market data requires abundant resources and comprehensive expertise. Get more information on the business risks of navigating credit decisions with limited trend visibility.
According to the latest Experian-Oliver Wyman Market Intelligence Report, mortgage originations for Q1 2014 decreased by 53 percent over Q1 2013 - $235 billion versus $515 billion, respectively.
Experian's most recent Credit Trends study analyzing current debt levels and credit scores in the top 20 major U.S. metropolitan areas found that Detroit, Michigan, residents have the lowest average debt ($23,604) and Dallas, Texas, residents have the highest average debt ($28,240).1
A recent survey focusing on the credit behavior of Millennials (age group 18 to 30) shows that 90 percent are familiar with cosigning and two-thirds have used a cosigner in the past.
While VantageScore® super-prime consumers carried the lowest average credit card balance of all credit tiers in Q4 2012 ($2,581), this group experienced the greatest average balance increase (6 percent) when compared with the previous quarter. All other credit tiers had little or no change to their average credit card balance.
Experian Automotive's Q4 2012 credit trends analysis found that 60-day delinquencies rose from 0.72 percent in Q4 2011 to 0.74 percent in Q4 2012. It was the first time in three years that 60-day delinquencies experienced a year-over-year increase.
With the constant (and improving!) changes in the consumer credit landscape, understanding the latest trends is vital for institutions to validate current business strategies or make adjustments to shifts in the marketplace. For example, a recent article in American Banker described how a couple of housing advocates who foretold the housing crisis in 2005 are now promoting a return to subprime lending. Good story lead-in, but does it make sense for “my” business? How do you profile this segment of the market and its recent performance? Are there differences by geography? What other products are attracting this risk segment that could raise concerns for meeting a new mortgage obligation? There is a proliferation of consumer loan and credit information online from various associations and organizations, but in a static format that still makes it challenging to address these types of questions. Fortunately, new web-based solutions are being made available that allow users to access and interrogate consumer trade information 24x7 and keep abreast of constantly changing market conditions. The ability to manipulate and tailor data by geography, VantageScore risk segments and institution type are just a mouse click away. More importantly, these tools allow users to customize the data to meet specific business objectives, so the next subprime lending headline is not just a story, but a real business opportunity based on objective, real-time analysis.
Mortgage origination volumes increased to $427 billion in Q4 2011 – a 31 percent quarterly gain. However, overall 2011 originations of $1.35 trillion were 16 percent lower than 2010 volumes. Sign up to attend our upcoming Webinar, which will focus on current credit trends and feature a closer look at the overleveraged consumer. Source: Experian-Oliver Wyman Market Intelligence Reports.
Up to this point, I’ve been writing about loan originations and the prospects and challenges facing bankcard, auto and real estate lending this year. While things are off to a good start, I’ll use my next few posts to discuss the other side of the loan equation: performance. If there’s one thing we learned during the post-recession era is that growth can have consequences if not managed properly. Obviously real estate is the poster child for this phenomenon, but bankcards also realized significant and costly performance deterioration following the rapid growth generated by relaxed lending standards. Today, bankcard portfolios are in expansion mode once again, but with delinquency rates at their lowest point in years. In fact, loan performance has improved nearly 50% in the past three years through a combination of tighter lending requirements and consumers’ self-imposed deleveraging. Lessons learned from issuers and consumers have created a unique climate in which growth is now balanced with performance. Even areas with greater signs of payment stress have realized significant improvements. For example, the South Atlantic region’s 4.2% 30+ DPD performance is 11% higher than the national average, but down 27% from a year ago. Localized economic factors definitely play a part in performance, but the region’s higher than average origination growth from a broader range of VantageScore consumers could also explain some of the delinquency stress here. And that is the challenge going forward: maintaining bankcard’s recent growth while keeping performance in check. As the economy and consumer confidence improves, this balancing act will become more difficult as issuers will want to meet the consumer’s appetite for spending and credit. Increased volume and utilization is always good for business, but it won’t be until the performance of these loans materializes that we’ll know whether it was worth it.
The strongest growth in new bankcard accounts is occurring in the near-prime and subprime segments of VantageScore® C, D and F. Year-over-year (Q1 2011 over Q1 2010) growth rates of 20 percent, 46 percent and 53 percent were observed for each of the respective tiers. Listen to our recent webinar featuring bankcard credit trends Source: Experian-Oliver Wyman Market Intelligence Reports
In my last two posts on bankcard and auto originations, I provided evidence as to why lenders have reason to feel optimistic about their growth prospects in 2012. With real estate lending however, the recovery, or lack thereof looks like it may continue to struggle throughout the year. At first glance, it would appear that the stars have aligned for a real estate turnaround. Interest rates are at or near all-time lows, housing prices are at post-bubble lows and people are going back to work with the unemployment rate at a 3-year low just above 8%. However, mortgage originations and HELOC limits were at $327B and $20B for Q3 2011, respectively. Admittedly not all-time quarterly lows, but well off levels of just a couple years ago. And according to the Mortgage Bankers Association, 65% of the mortgage volume was from refinance activity. So why the lull in real estate originations? Ironically, the same reasons I just mentioned that should drive a recovery. Low interest rates – That is, for those that qualify. The most creditworthy, VantageScore A and B consumers made up nearly 77% of the $327B mortgage volume and 87% of the $20B HELOC volume in Q3 2011. While continuing to clean up their portfolios, lenders are adjusting their risk exposure accordingly. Housing prices at multi-year lows - According to the S&P Case Shiller index, housing prices were 4% lower at the end of 2011 when compared to the end of 2010 and at the lowest level since the real estate bubble. Previous to this report, many thought housing prices had stabilized, but the excess inventory of distressed properties continues to drive down prices, keeping potential buyers on the sidelines. Unemployment rate at 3-year low – Sure, 8.3% sounds good now when you consider we were near 10% throughout 2010. But this is a far cry from the 4-5% rate we experienced just five years ago. Many consumers continue to struggle, affecting their ability to make good on their debt obligations, including their mortgage (see “Housing prices at multi-year lows” above), in turn affecting their credit status (see “Low interest rates” above)… you get the picture. Ironic or not, the good news is that these forces will be the same ones to drive the turnaround in real estate originations. Interest rates are projected to remain low for the foreseeable future, foreclosures and distressed inventory will eventually clear out and the unemployment rate is headed in the right direction. The only missing ingredient to make these variables transform from the hurdle to the growth factor is time.
While retail card utilization rates decreased slightly in Q3 2011, retail card delinquency rates increased for all performance bands (30-59, 60-89 and 90-180 days past due) in Q3 2011 after reaching multiyear lows the previous quarter. Listen to our recent Webinar on consumer credit trends and retail spending. Source: Experian-Oliver Wyman Market Intelligence Reports
If you attended any of our past credit trends Webinars, you’ve heard me mention time and again how auto originations have been a standout during these times when overall consumer lending has been a challenge. In fact, total originated auto volumes topped $100B in the third quarter of 2011, a level not seen since mid-2008. But is this growth sustainable? Since bottoming at the start of 2009, originations have been on a tear for nearly three straight years. Given that, you might think that auto origination’s best days are behind it. But these three key factors indicate originations may still have room to run: 1. The economy Just as it was a factor in declining auto originations during the recession, the economy will drive continued increases in auto sales. If originations were growing during the challenges of the past couple of years, the expected improvements in the economy in 2012 will surely spur new auto originations. 2. Current cars are old A recent study by Experian Automotive showed that today’s automobiles on the road have hit an all-time high of 10.6 years of age. Obviously a result of the recent recession, consumers owning older cars will result in pent up demand for newer and more reliable ones. 3. Auto lending is more diversified than ever I’m talking diversification in a couple of ways: Auto lending has always catered to a broader credit risk range than other products. In recent years, lenders have experimented with moving even further into the subprime space. For example, VantageScore D consumers now represent 24.4% of all originations vs. 21.2% at the start of 2009. There is a greater selection of lenders that cater to the auto space. With additional players like Captives, Credit Unions and even smaller Finance companies competing for new business, consumers have several options to secure a competitively-priced auto loan. With all three variables in motion, auto originations definitely have a formula for continued growth going forward. Come find out if auto originations do in fact continue to grow in 2012 by signing up for our upcoming Experian-Oliver Wyman credit trends Webinar.
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