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Lending activity is quickening, yet the overall debt burden remains high. Unemployment remains high nationally, though consumer spending is steadily increasing. Housing remains a stumbling block for the economy, while loan delinquencies show signs of improvement for most lines of business. What does this all mean? Our overall economy is recovering. While it’s no boom, it’s still a financial and emotional roller coaster, but with little gloom and no doom. Read our analysis of Consumer Credit Trends, released today at Vision 2012. A few highlights: Economic indicators are improving – The nation’s economic rebound from the Great Recession is real. While conditions haven’t quite returned to pre-downturn levels, the rate of recovery, which first emerged in June 2009, accelerated at the end of 2011 and that improvement is continuing strongly today. Consumers continue to manage significant debt obligations – On the debt front, overall burdens still remain high for many consumers despite further declines in outstanding loan balances at the end of 2011. In fact, total outstanding consumer debt has fallen more than $1 trillion since its peak in 2008. Lending activity is quickening – New lending has picked up, although 2011 brought a mixed story for that indicator. Bankcard originations and especially automotive loans were the biggest positives, as consumer confidence began to recover in response to improving economic factors. However, new mortgage lending remained weak. Delinquencies continue to trend lower – Loan delinquencies continue to show signs of improvement for most lines of business. Tighter lending standards and a change in payment hierarchy have sparked substantial improvements in the performance of newer originations in auto and bankcard loans. Housing will continue to struggle through 2012 – Housing remains a major stumbling block for the economy, and it promises to be some time before the housing market produces a real rebound from the 2008 bust. Mortgage-lending volumes remain at extremely low levels, despite record low interest rates. Further economic gains are anticipated – Most economists anticipate further improvement in key business barometers over the next few years. They foresee inflation-adjusted gross domestic product for the United States rising this year and in the next two by a moderate amount, with consumer spending also increasing. The Bottom Line: The nation’s economic recovery shows signs of real momentum. While it may be slow, it will be steady. Consumers continue to exhibit signs of increased confidence, and this is helping to bring discretionary spending back online. For lenders, 2012 is the year for them to return to pre-recession strategies if they are to grow significantly. They should concentrate on specific markets and portfolios. They must mitigate vanilla offerings of credit with market share gains.
Mortgage industry trends have already been a huge topic of discussion at Vision 2012. Although we’re seeing signs of recovery in the auto and bankcard lending sectors, we're clearly not out of the woods yet for the mortgage industry. On average, the S&P/Case Schiller index reports that home prices have declined four percent YOY, and they are expected to decline in many major markets as foreclosure activity picks up in the second half of this year. As long as mortgage delinquencies occur, the economy will lag, too. There’s another thing weighing down the mortgage industry. The credit tightening experienced in the mortgage market since 2006 is likely to continue, especially given the stringent criteria proposed by the Dodd-Frank Act for a “qualified mortgage.” This new criteria has increasingly stringent requirements for creditworthiness, loan size and debt-to-income ratios. Using the qualified mortgage criteria, we analyzed mortgages for the past six years and found that in 2006, nearly 1 in every 2 loans would not have met this criteria. This percentage steadily declined until 2009 when less than 1 in 3 loans would not have qualified. Believe it or not, since the onset of the credit crisis, the quality of the loans and borrowers has actually improved – by 2011, the quality of mortgage originations improved to the point that only 27 percent do not meet the qualified mortgage criteria. We attribute this decline to the increasingly stringent requirements imposed on borrowers to establish their creditworthiness and their ability to pay their mortgage. Especially as we see the economy improving in other areas (the average monthly debt-to-income ratio has been declining steadily – from 19 percent in 2011 down from 27 percent in 2006), hopefully this coupled with this mortgage data is a good sign. There’s no question that we’re not out of the woods yet, but these positive signs in consumer creditworthiness are cause for optimism. Recommended Reading Experian Addresses State of U.S. Credit Markets and More in New White Papers Getting Ready for Vision 2012 [Video] Photo: Shutterstock
Here is a list of 8 free white papers from our Experian Vision 2012 conference: State of the U.S. Credit Markets – At Last, Signs of a Real Recovery The economy’s recovery from the Great Recession may have started slowly, but it is accelerating – and it’s genuine. Economic indicators tell the story of improving business prospects. For credit issuers, the message is real, too. Now’s the time to look with fresh eyes at your post recession lending strategies. Download this free white paper. Universe Expansion – Growth Strategies in the Evolving Consumer Market As the economy gains strength, lenders are engaging in an increasingly fierce competition to entice the best candidates to their portfolios and to grow their lending business. A variety of prospecting strategies are now available that compliment and expand on a lender’s current growth initiatives – now is the time to ensure that optimal strategies are in place and that opportunities within near-prime are not overlooked. Download this free white paper. Converting Information to Intelligence – Current Trends in Mitigating Small-Business Risks Through Analytics As former Chrysler CEO Lee Iacocca put it, “Even a correct decision is wrong when taken too late.” Portfolio managers who oversee small-business risks know this well. They realize it when they make a decision about approving or rejecting a loan request and recognize later the correct decision would have been clearer if they could have weighed additional data and used improved analytics. This white paper presents some of these latest trends affecting the small-business lending landscape. Specifically, it illuminates how companies are using the new robust data sources and analytic tools – from consortium data to rapid model customization – to maximize their interactions with small-business clients with greater accuracy. Download this free white paper. Understanding Automotive Loan Charge-off Patterns Can Help Mitigate Lender Risk Loan delinquency rates are one of the most important statistics to track in the automotive finance industry. If consumers are not repaying loans on time, it puts billions of dollars at risk. Experian Automotive has found several clear patterns that can help lenders better understand the root cause of loan delinquencies. These can be found in vehicle buyers themselves through credit scores and length of credit history; through the vehicles themselves and their own history; and through the loans themselves by understanding the impact of high loan-to-value ratios. All of these data points provide insight into patterns of where charge offs are most likely to occur and can significantly impact the strategies lenders adopt. Turning the Tide – Managing Troubled Portfolios The economy may be recovering and the credit picture improving, but lending institutions still find themselves coping with some troubled portfolios. Plus, they always need to be prepared to identify high-risk accounts. What they can discover is that turning around a challenged loan portfolio requires taking just a few basic steps. Download this free white paper. Driving Profitability and Minimizing Risk Through Portfolio Management As the economy recovers, managers of small-business portfolios must always remember that their loan portfolios are constantly changing. That’s why it’s critical for risk managers to look at their debt holders differently. They must examine more closely the behaviors of these owners, especially to predict the potential for fraudulent activity and what can be done to minimize losses. This is vital because fraud committed by small-business owners, while relatively rare, generates at least three times the impact of a conventional fraud loss. Download this free white paper. Fraud Detection in Newly Opened Accounts — Connecting Data Helps Predict Identity Theft Fraud continues to be a genuine problem and challenge. After a sharp and unexplained drop in identity thefts in 2010, fraud schemes climbed 12.6 percent in 2011, research by Javelin Strategy & Research shows. Fortunately, the latest technologies and a new Experian® weapon — Precise ID for Customer Management — offer the opportunity to improve fraud detection substantially, especially very early in the Customer Life Cycle. This paper explores how this new weapon helps detect identity theft and other fraud and how data velocity can prove the key to predicting identity theft. Download this free white paper. Overview of the Consumer Financial Protection Bureau — What’s New and What to Expect in 2012 The Consumer Financial Protection Bureau (CFPB) received authority to enforce a majority of the nation’s financial consumer protection laws in July 2011, but the new regulator’s powers were limited until President Obama made a “recess” appointment in January 2012 to name former Ohio Attorney General Richard Cordray as the first director of the CFPB. Now, the CFPB has the authority to not only enforce existing consumer protection laws but also to write new regulations for non-bank financial institutions and to supervise their activities. It is imperative that financial institutions under the authority of the CFPB ensure that they follow industry best practices and are in compliance with current federal and state regulations to prepare for future actions by the new consumer financial regulator. Download this free white paper.
Today, we stand at the forefront of a digital revolution that is reshaping the financial services industry. And, against this backdrop, financial institutions are at vastly different levels of maturity; the world’s biggest banks are managing large-scale infrastructure migrations and making significant investments in AI while regional banks and credit unions are putting plans in place for modernization strategies, and fintechs are purpose-built and cloud native. To explore this more, I recently had the privilege of attending the annual Reuters NEXT live event in New York City. The event gathers globally recognized leaders across business, finance, technology, and government to tackle some of today’s most pressing issues. On the World Stage, I joined Del Irani, a talented anchor and broadcast journalist, to discuss the future of lending and the pivotal role of data and AI in building a more inclusive financial system. Improving financial access Our discussion highlighted the lack of access to traditional financial systems, and the impact it has on nearly 100 million people in North America alone. Globally, the problem affects over one billion people. These people, who are credit invisible, unscoreable, or have subprime credit scores, are unable to secure everyday financial products that many of us take for granted. What many don’t realize is, this is not a fringe subset of the population. Most of us, myself included, know someone who has faced the challenges of financial exclusion. Everyday Americans, including young people who are just starting out, new immigrants and people from diverse communities, often lack access to mainstream financial products. We discussed how traditional lending has a limited view of a consumer. Like looking through a keyhole, the lender’s understanding of the person in view is often incomplete and obstructed. However, with expanded data, technology, and advanced analytics, there is an opportunity to better understand the whole person, and as a result have a more inclusive financial system. At Experian, we have a unique ability to connect the power of traditional credit with alternative data, bringing a more holistic understanding of consumers and their behaviors. We are dedicated to leveraging our rich history in data and our expertise in technology to create the future of credit and ultimately bring financial power to everyone. The future of lending After spending two days with over 700 industry leaders from around the world, one thing is abundantly clear: much like the early days of the internet, today, we are at the cutting-edge of a technical revolution. Reflecting on my time at Reuters NEXT, I am particularly excited by the collective commitment to drive innovative, and smarter ways of working. We are only beginning to scratch the surface of how data and technology can transform financial services, and Experian is positioned to play a significant role. As we look to the future, I am excited about the ways we will create new opportunities for businesses and consumers alike.
We believe that financial literacy leads to empowerment. That is why Experian supports initiatives and partners with community organizations to deliver financial education. We also develop products and services that give more control to consumers over their credit profile and financial health. As part of advancing our mission of Financial Power to All®, we are proud to announce we are helping more than 5,000 Hispanic individuals nationwide by relieving $10 million dollars of consumer debt. To provide families with this boost, we joined forces with ForgiveCo, a Public Benefit Corporation (PBC), to administer the acquisition and cancellation of qualifying consumer debt for the selected recipients. Beneficiaries will also receive a one-year premium Experian membership for free that offers access to their Experian credit report in English and Spanish[i], FICO® Score[ii], bilingual educational content, and other financial resources. We hope this effort helps raise awareness of the importance of financial literacy for everyone, and that Experian has resources to help individuals reach their financial dreams. To amplify the message, we collaborated with multi-platinum, award-winning singer and songwriter Prince Royce and you can see his video here. In fact, we have been making a concerted effort the last several years to evolve our educational resources and products to better support all underserved communities. Some of our other activities include the creation of the B.A.L.L. for Life initiative that connects African American and Hispanic youth with financial education, supporting scholarships for Asian Americans through the Ascend organization, providing custom resources for Out & Equal and Born This Way Foundation for the LGBTQ+ community, supporting the NextGen Innovation Lab for Disability:IN, and sponsoring credit counseling for the military community with Operation HOPE. For resources in Spanish, Experian offers a credit e-book and consumers can access a full suite of articles at the Ask Experian blog here. [i] Only Experian credit reports are available in Spanish. All other services associated with an Experian membership are available in English only. English fluency is required for full access to Experian’s products. [ii] Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.
Amid some of the financial challenges that underserved communities experience, members across the financial services community remain committed to championing initiatives and programs that drive greater financial inclusion. In fact, collaboration has led to the inclusion of non-debt related payment information on consumers’ credit profiles, as well as digital services that make it easier to manage money. These efforts have helped to broaden access to fair and affordable financial resources for more individuals. While significant progress has been made, there is still more work to do. However, some of the misconceptions and myths about the financial services community are hindering further advancement. Debunking these myths will accelerate progress by building trust between the financial services community and consumers. Person withdrawing money from ATM contactless Myth #1: “Financial institutions have no interest in underserved consumers or credit invisibles.” The truth is, banks and credit unions want to say “yes” to more prospective borrowers, including individuals and families from underserved communities. Beyond being the right thing to do, it’s an opportunity to potentially build lifelong relationships with a relatively untapped market. A show of good faith to communities who have largely been ignored by the financial system could lead to customer loyalty that may extend to their family and friends. That’s why participants across the financial ecosystem have been proponents of including expanded data sources—such as on-time telecom, utility and video streaming service payments—on to consumer credit reports, as well as exploring other Fair Credit Reporting Act (FCRA)-regulated data sources, including payment data on short-term small dollar loans and expanded public records data. Making this data more accessible to lenders provides a more comprehensive view of a consumer’s ability and willingness to repay outstanding debt—an actionable solution to extending credit to consumers without lenders taking on additional risk. Myth #2: “There is a lack of trustworthy financial education resources.” The financial services community and affiliated organizations recognize that empowering people with financial knowledge and skillset are critical to consumers’ financial success. In fact, banks and credit unions are partnering with nonprofits and non-governmental organizations to better understand the unique challenges and opportunities within specific communities and provide relevant tools and resources. For example, Experian’s B.A.L.L. for Life (Be A Legacy Leader) program, launched in partnership with the National Urban League, serves as a catalyst for engaging with Black communities and low-income youth through live events and digital financial education. Subject matter experts, professional athletes, celebrities, and other influencers share their experiences and expertise, covering topics such as banking, credit, financial management and investing. In addition, to help people improve their financial management, Experian partners with the National Foundation for Credit Counseling (NFCC). The NFCC connects consumers with certified financial counselors to help them address various pain points, including debt management, homeownership, student loans or small business cash flow issues. Myth #3: “Underserved communities have few opportunities to build credit and enter the mainstream financial system.” People from underserved communities, as well as younger consumers and recent immigrants are often excluded from the mainstream financial system because they lack an extensive credit history. Historically, it’s created a vicious cycle; in order to get credit, you have to have credit. Fortunately, there has been a sea change in innovative solutions to address the specific needs of these populations. These include new credit scoring models and microfinancing which provide financial services to individuals who may have been excluded from traditional banking systems. In addition, by incorporating expanded data sources, such as telecom, utility and residential rental payments onto credit reports, lenders have more visibility into consumers who may have been excluded by traditional credit scoring methods.These programs help individuals and families from underserved communities establish and build a credit history that could enable loans, or the ability to rent an apartment or open their dream business. An example is Experian Boost®, a free feature that allows Experian members to contribute their history of making utility, cellphone, insurance, residential rent and video streaming service payments directly into their Experian credit profile. By incorporating nontraditional credit data like paying utility bills on time, online banking transactions, rental payments and verified income data, more people can establish a credit profile that can potentially qualify them for a loan. More Inclusion, Fewer Myths It’s encouraging that community organizations and banks are beginning to see the economic and social benefits of aligning on financial literacy and inclusion. As more initiatives come online, underserved populations will be able to establish a better financial foundation. Then, we can declare the myths to be history.