Tag: IntelliView
Delinquency rates for auto loans moved up slightly in the last quarter of 2013, with the 30 to 59 days past due (DPD), 60 to 89 DPD and 90 to 180 DPD delinquency rates at 2.18 percent, 0.56 percent and 0.24 percent, respectively.
Using data from IntelliViewSM, Credit.com recently compiled a list of states with the highest average bankcard utilization rates. Alaska took first place, with an average utilization ratio of 27.73 percent. This should come as no surprise since Alaska has recently topped lists for highest credit card balances and highest revolving debt.
The December release of the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults, showed the national composite* increased for the second consecutive month, reaching 1.64 percent in November. The first mortgage default rate also continued its increase, moving from 1.47 percent in October to 1.58 percent in November. All other loan types – auto loans, bankcard and second mortgage – posted decreases in their default rates in November.
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.
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.
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.
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.
As we kick off the new year, I thought I’d dedicate a few blog posts to cover what some of the consumer credit trends are pointing to for potential growth opportunities in 2012, specifically on new loan originations for bankcard, automotive and real estate lending. With the holiday season behind us (and if you’re anything like me, you have the credit card statements to prove it!), I thought I’d start off with bankcards for my first post of the year. Everyone’s an optimist at the start of a new year and bankcard issuers have a right to feel cautiously optimistic about 2012 based on the trends of last year. In the second quarter of 2011, origination volumes grew to nearly $47B, up 28% from the same quarter a year earlier. Actually, originations have been steadily growing since the middle of 2010 with increasing distribution across all VantageScore risk bands and an impressive 42% increase in A paper volume. So, is bankcard the new power portfolio for growth in 2012? The broad origination risk distribution may signal the return of balance-carrying consumers (aka: revolvers) from those that pay with credit cards, but pay off the balance every month (aka: transactors). The tighter lending criteria imposed in recent years has improved portfolio performance significantly, but at the expense of interest fee profitability from revolver use. This could change as more credit cards are put in the hands of a broader consumer risk base. And as consumer confidence continues to grow, (it reached 64.5 in December, 10 points higher than November according to the Conference Board) , consumers in all risk categories will no doubt begin to leverage credit cards more heavily for continued discretionary spend, as highlighted in the most recent Experian – Oliver Wyman quarterly webinar. Of course, portfolio growth with the increased risk exposure requires a watchful eye on the delinquency performance of outstanding balances. We continue to be at or near historic lows for delinquency, but did see a small uptick in early stage delinquencies in the third quarter of 2011. That being said, issuers appear to have a good pulse on the card-carrying consumer and are capitalizing on the improved payment behavior to maximize their risk/reward payoff. So all-in-all, strong 2011 results and portfolio positioning has set the table for a promising 2012. Add an improving economy to the mix and card issuers could shift from cautious to confident in their optimism for the new year.
With the raising of the U.S. debt ceiling and its recent ramifications consuming the headlines over the past month, I began to wonder what would happen if the general credit consumer had made a similar argument to their credit lender. Something along the lines of, “Can you please increase my credit line (although I am maxed out)? I promise to reduce my spending in the future!” While novel, probably not possible. In fact, just the opposite typically occurs when an individual begins to borrow up to their personal “debt ceiling.” When the amount of credit an individual utilizes to what is available to them increases above a certain percentage, it can adversely affect their credit score, in turn affecting their ability to secure additional credit. This percentage, known as the utility rate is one of several factors that are considered as part of an individual’s credit score calculation. For example, the utilization rate makes up approximately 23% of an individual’s calculated VantageScore. The good news is that consumers as a whole have been reducing their utilization rate on revolving credit products such as credit cards and home equity lines (HELOCs) to the lowest levels in over two years. Bankcard and HELOC utilization is down to 20.3% and 49.8%, respectively according to the Q2 2011 Experian – Oliver Wyman Market Intelligence Reports. In addition to lowering their utilization rate, consumers are also doing a better job of managing their current debt, resulting in multi-year lows for delinquency rates as mentioned in my previous blog post. By lowering their utilization and delinquency rates, consumers are viewed as less of a credit risk and become more attractive to lenders for offering new products and increasing credit limits. Perhaps the government could learn a lesson or two from today’s credit consumer.
Recent findings on vintage analysis Source: Experian-Oliver Wyman Market Intelligence Reports Analyzing recent vintage analysis provides insights gleaned from cursory review Analyzing recent trends from vintages published in the Experian-Oliver Wyman Market Intelligence Reports, there are numerous insights that can be gleaned from just a cursory review of the results. Mortgage vintage analysis trends As noted in an earlier posting, recent mortgage vintage analysis\' show a broad range of behaviors between more recent vintages and older, more established vintages that were originated before the significant run-up of housing prices seen in the middle of the decade. The 30+ delinquency levels for mortgage vintages in 2005, 2006, and 2007 approach and in two cases exceed 10 percent of trades in the last 12 months of performance, and have spiked from historical trends, beginning almost immediately after origination. On the other end of the spectrum, the vintages from 2003 and 2002 have barely approached or exceeded 5 percent for the last 6 or 7 years. Bandcard vintage analysis trends As one would expect, the 30+ delinquency trends demonstrated within bankcard vintage analysis are vastly different from the trends of mortgage vintages. Firstly, card delinquencies show a clear seasonal trend, with a more consistent yearly pattern evident in all vintages, resulting from the revolving structure of the product. The most interesting trends within the card vintages do show that the more recent vintages, 2005 to 2008, display higher 30+ delinquency levels, especially the Q2 2007 vintage, which is far and away the underperformer of the group. Within each vintage pool, an analysis can extend into the risk distribution and details of the portfolio and further segment the pool by credit score, specifically VantageScore. In other words, the loans in this pool are only for the most creditworthy customers at the time of origination. The noticeable trend is that while these consumers were largely resistant to deteriorating economic conditions, each vintage segment has seen a spike in the most recent 9-12 months. Given that these consumers tend to have the highest limits and lowest utilization of any VantageScore band, this trend encourages further account management consideration and raises flags about overall bankcard performance in coming months. Even a basic review of vintage analysis pools and the subsequent analysis opportunities that result from this data can be extremely useful. This vintage analysis can add a new perspective to risk management, supplementing more established analysis techniques, and further enhancing the ability to see the risk within the risk. Purchase a complete picture of consumer credit trends from Experian’s database of over 230 million consumers with the Market Intelligence Brief.
Analysis opportunity for vintage analysis Vintage analysis, specifically vintage pools, present numerous useful opportunities for any firm seeking to further understand the risks within specific portfolios. While most lenders have relatively strong reporting and metrics at hand for their own loan portfolio monitoring...these to understand the specific performance characteristics of their own portfolios -- the ability to observe trends and benchmark against similar industry characteristics can enhance their insights significantly. Assuming that a lender possesses the vintage data and vintage analysis capability necessary to perform benchmarking on its portfolio, the next step is defining the specific metrics upon which any comparisons will be made. As mentioned in a previous posting, three aspects of vintage performance are often used to define these points of comparison: Vintage delinquency including charge-off curves, which allows for an understanding of the repayment trends within each pool. Specifically, standard delinquency measures (such as 30+ Days Past Due (DPD), 60+ DPD, 90+ DPD, and charge-off rates) provide measures of early and late stage delinquencies in each pool. Payoff trends, which reflect the pace at which pools are being repaid. While planning for losses through delinquency benchmarking is a critical aspect of this process, so, too, is the ability to understand pre-repayment tendencies and trends. Pre-payment can significantly impact cash-flow modeling and can add insight to interest income estimates and loan duration calculations. As part of the Experian-Oliver Wyman Market Intelligence Reports, these metrics are delivered each quarter, and provide a consistent, static pool base upon which vintage benchmarks can be conducted. Clearly, this is a rather simplified perspective on what can be a very detailed analysis exercise. A properly conducted vintage analysis needs to consider aspects such as: lender portfolio mix at origination; lender portfolio footprint at origination; lender payoff trends and differences from benchmarked industry data in order to properly balance the benchmarked data against the lender portfolio.
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