Chicago,
16
August
2017
|
03:34 PM
America/Chicago

Start of a New Trend? Pullback in Subprime Loans Observed

For the first time since 2012, originations to subprime consumers declined year-over-year for a number of major credit products, according to TransUnion’s (NYSE:TRU) Q2 2017 Industry Insights Report. The report, powered by PramaSM analytics, found that 4.63 million subprime consumers originated an auto loan or lease, personal loan or credit card in Q1 2017. Comparatively, 4.89 million subprime consumers originated one of these products in Q1 2016.

“Across product lines, we saw a decline in subprime originations at the beginning of 2017, and for the first time in a number of years we observed this for consecutive quarters,” said Ezra Becker, senior vice president of research and consulting for TransUnion. “Immediately following the recession, many lenders pulled back on subprime originations to control delinquency. As the economy recovered, lenders loosened their underwriting standards and allowed more subprime consumers greater access to credit. It appears that this trend may now be changing, though it is a much different environment than what we observed just after the recession. The economy is performing well, and after several years of increased subprime lending, some lenders may simply be taking a pause.”

Credit Product – Timeframe

Subprime originationsin Q1 2017

Subprime originationsin Q1 2016

Year-over-yeargrowth rate

Auto loans and leases

1.10 million

1.20 million

-8.9%

Credit cards

2.66 million

2.71 million

-1.8%

Personal loans

882,303

987,263

-10.6%

In Q1 2017, subprime personal loan originations declined 10.6% year-over-year, compared to a positive annual growth rate of 11.0% in Q1 2016. This marks three straight quarters of year-over-year declines in originations. More than 100,000 fewer subprime consumers opened a personal loan in Q1 2017 than in Q1 2016.

In fact, personal loan originations declined for all risk tiers, but at lower rates than for subprime originations. Total originations dropped 6.9% from 2.99 million in Q1 2016 to 2.78 million in Q1 2017.

“A combination of factors have influenced the decline in subprime personal loan originations. For example, FinTech lenders faced funding challenges in Q2 2016,” said Becker. “After years of growth in auto lending for subprime consumers, not surprisingly we observed an uptick in auto delinquency. Higher delinquency rates have long been anticipated as the result of that credit expansion. The reduction in subprime auto lending is a natural reaction to the emergence of that increased delinquency.”

In the credit card market, subprime originations declined by 1.8% to start 2017, the second consecutive quarter of decline. Since 2014, subprime originations had increased at a rapid rate, averaging growth of 29.2% in the first quarters of 2014, 2015 and 2016. In Q1 2017, subprime originations declined at nearly the same rate as total originations (down 1.9%).

As subprime consumers gained access to credit cards, lenders kept subprime credit lines low. In Q1 2017, subprime consumers held just 2.6% of total credit lines.

Auto loan originations declined 8.9% year-over-year from Q1 2016 to Q1 2017. Originations to subprime consumers dropped to 1.10 million in Q1 2017, down from 1.20 million in the first quarter of 2016. At the same time, total originations declined just 2.9% to 6.73 million in Q1 2017.

“Consumers with subprime credit who want to increase their likelihood of credit approval, or secure more favorable lending terms, should focus on building their credit,” said Heather Battison, vice president of consumer communications for TransUnion. “Consistently paying bills on time, even if just the minimum due, combined with regularly monitoring your credit report, both go a long way toward achieving and maintaining credit health.”

Mortgage Delinquency Rate Drops to New Low since Recession

The mortgage delinquency rate reached the lowest level since the recession in the second quarter of 2017, dropping below 2% for the first time in almost 10 years. The mortgage delinquency rate was 1.92% in Q2 2017, down 16.5% from 2.30% in Q2 2016.

“In the second quarter, we hit a new milestone for mortgage delinquencies as the rate dropped below 2%,” said Joe Mellman, senior vice president and mortgage business leader for TransUnion. “Because delinquency rates reached 7% in the recession, mortgage delinquency has taken longer to recover. We’re now at the lowest delinquency levels in nearly a decade, and we anticipate those levels will remain low through the rest of this year.”

Viewed one quarter in arrears, mortgage originations remained relatively steady year-over-year in the first quarter of 2017. Up slightly from 1.46 million in Q1 2016, mortgage originations reached 1.49 million in Q1 2017. Largely due to the rise in interest rates, originations declined 28.3% between Q4 2016 and Q1 2017. A year prior, originations only declined 9.4% between Q4 2015 and Q1 2016.

More than 83% of mortgage originations were in the prime and above risk tiers in the first quarter of 2017. Market share of prime and above risk tiers has remained roughly in that range since Q4 2013.

The average new account balance, also viewed one quarter in arrears, declined 1.6% from $223,262 in Q1 2016 to $219,743 in Q1 2017. “Average new account balances tend to be larger for refinance transactions as opposed to purchase transactions, because consumers with higher loan amounts can realize greater benefits from lowering interest rates and/or loan term extension,” added Mellman. “As interest rates rise, refi activity declines. This year, we have observed that reduction, leading to lower average new account balances.”

Trends in the Mortgage Market

Mortgage Lending Metric

Q2 2017

Q2 2016

Q2 2015

Q2 2014

Delinquency Rate (60+ DPD) per Borrower

1.92%

2.30%

2.82%

4.02%

Average Debt Per Borrower

$198,045

$192,749

$188,504

$187,999

Prior Quarter Originations*

1.49 million

1.46 million

1.48 million

1.03 million

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Total Credit Card Balances Rise Following Rich Credit Offers in 2016

The latest TransUnion Industry Insights report found that total credit card balances continued their steady year-over-year increase in the second quarter of 2017. Total card balances reached nearly $714 billion, up 7.8% from $662 billion in Q2 2016. The average balance per consumer grew 3.3% to $5,422, up from $5,247 in Q2 2016.

“Total credit card balances continued to climb in the second quarter, driven by growth in super prime card balances,” said Paul Siegfried, senior vice president and credit card business leader for TransUnion. “Throughout 2016, lenders provided rich offers to these consumers, and we saw a spike in super prime originations as a result. Now, we are observing super prime consumers using their credit and growing their card balances.”

The credit card delinquency rate reached 1.46% in Q2 2017, up 13.2% from 1.29% in Q2 2016. This brings the card delinquency rate above the average Q2 delinquency reading of 1.27% for the last three years.

“We predicted a slight rise in the credit card delinquency rate as a result of the growth in non-prime access over the last few years,” added Siegfried. “Performance in the energy-dependent states has stabilized, and this increase is in line with expectations. While this increase may seem large, delinquency levels remain well below the 3% delinquency rates observed immediately after the recession.”

Trends in the Credit Card Market

Credit Card Metric

Q2 2017

Q2 2016

Q2 2015

Q2 2014

Delinquency Rate (90+ DPD) Per Borrower

1.46%

1.29%

1.20%

1.31%

Average Debt Per Borrower

$5,422

$5,247

$5,197

$5,228

Prior Quarter Originations*

14.98 million

15.28 million

13.49 million

12.13 million

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Auto Delinquency Rate Rises after Years of Non-prime Origination Growth

TransUnion’s latest Industry Insights Report found that the auto delinquency rate reached 1.23% in Q2 2017, an increase of 10.8% from 1.11% Q2 2016.

“For the past several years, lenders have offered more financing opportunities to non-prime consumers,” said Brian Landau, senior vice president and automotive business leader for TransUnion. “As a result, we expected to see a slight rise in delinquency. It’s important to note that we still remain at very low levels of auto delinquency, but we will continue to monitor this trend.”

Viewed one quarter in arrears, auto originations declined to 6.73 million in Q1 2017, down 2.9% from 6.93 million in Q1 2016. This marks the third consecutive quarter of year-over-year declines in auto originations and the first decline in origination growth in any first quarter since 2010.

“Lenders have also raised concerns about the downward pressure on used car values, and we are beginning to see this impact origination growth,” added Landau. “Despite this decline, total auto balances continued to increase in the second quarter of 2017.”

Total auto balances achieved a new high in Q1 2017, reaching $1.145 trillion. The total balance was up 6.9% from $1.072 trillion in Q1 2016.

Trends in the Auto Market

Auto Lending Metric

Q2 2017

Q2 2016

Q2 2015

Q2 2014

 Delinquency Rate (60+ DPD) Per Borrower

1.23%

1.11%

1.00%

1.09%

Average Debt Per Borrower

$18,486

$18,177

$17,699

$17,127

Prior Quarter Originations*

6.73 million

6.93 million

6.51 million

6.23 million

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Personal Loans Reach New Milestones as Balances Grow and Delinquencies Drop

In the second quarter of 2017, the personal loan delinquency rate declined to the lowest level since 2009. The delinquency rate was 3.02% in Q2 2017, an 8.5% decline from 3.30% in Q2 2016.

“After a difficult 2016 for many FinTech lenders, we observed growth and stabilization in key metrics such as balances, delinquency and consumer participation,” said Jason Laky, senior vice president and consumer lending business leader for TransUnion. “More than 16 million consumers now have a personal loan, and we expect this trend to continue as more banks and credit unions re-enter the personal loan market.”

Personal loan balances achieved a new milestone of nearly $107 billion in Q2 2017, growing 10.8% over Q2 2016, when total balances were $96 billion. While balances increased, the growth rate was lower than the average Q2 growth rate of 24.7% for the past three years. The average balance per consumer also reached a new high at $7,781 in the second quarter, up slightly from $7,745 in Q2 2016.

Personal loan originations, viewed one quarter in arrears, declined 6.9% to 2.78 million in Q2 2017, compared to 2.99 million in Q2 2016.

“The personal loan market continues to grow, but with the pullback in non-prime originations offset by a shift toward prime plus and super prime consumers. At the beginning of 2017, the larger loans taken by the most creditworthy consumers helped drive balance growth and higher average borrower debt, while lowering overall delinquency,” said Laky.

Trends in the Unsecured Personal Loan Market

Unsecured Personal Loan Metric

Q2 2017

Q2 2016

Q2 2015

Q2 2014

Delinquency Rate (60+ DPD) Per Borrower

3.02%

3.30%

3.32%

3.68%

Average Debt Per Borrower

$7,781

$7,745

$7,102

$6,501

Prior Quarter Originations*

2.78 million

2.99 million

2.63 million

2.40 million

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Please visit http://www.transunioninsights.com/IIR for more charts and details about TransUnion’s Q2 2017 Industry Insights Report or to register for TransUnion's Q2 2017 Industry Insights Webinar.

Boilerplate

About TransUnion (NYSE:TRU)

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

Media Contact
photo:Dave Blumberg
Dave Blumberg
Senior Director of Public Relations, U.S. & International
312-985-3059
Share this release
Share on: Twitter
Share on: Facebook
Share on: LinkedIn
Latest news