TransUnion: Subprime borrowing, rate hikes to boost 2017 delinquencies
2017 TransUnion credit performance forecast finds delinquency levels still far below recession levels
Anticipated
increases in interest rates and growth in the number of subprime
borrowers in the consumer lending market will spur delinquency rates in
2017 for auto loans and credit cards, according to TransUnion’s 2017 consumer credit market forecast.
The study also found that serious mortgage loan delinquency rates are
expected to drop, while unsecured consumer loan delinquencies are
expected to see only a minimal increase this year.
“The consumer
credit markets have been functioning extremely well the last few years,
but an increase in subprime lending has begun to impact delinquency
levels for some industries, specifically the auto finance and credit
card markets,” said Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit.
“On
the credit card front, we have seen the percent of subprime accounts
reach their highest level since the end of 2010; for auto finance, this
figure is now at its highest point since the conclusion of 2013,” Verma
said. “Our forecast also takes into account an expected 50-basis point
aggregate increase in the prime interest rate beginning this December
and continuing through the end of next year. The combination of these
elements is a key driver of the expected delinquency rate increases.”
Serious Borrower-Level Delinquency Rates for Key Credit Products*
Credit Product | Q4 2012 | Q4 2013 | Q4 2014 | Q4 2015 | Q4 2016** | Q4 2017** | PCT Change in Last 5 Years (2012-2017) |
Auto Loans | 1.15% | 1.23% | 1.19% | 1.27% | 1.36% | 1.40% | +21.3% |
Credit Cards | 1.75% | 1.60% | 1.48% | 1.59% | 1.71% | 1.82% | +3.7% |
Mortgage Loans | 5.38% | 4.31% | 3.40% | 2.46% | 2.21% | 2.11% | (-60.8%) |
Unsecured Personal Loans | 3.93% | 4.01% | 3.73% | 3.62% | 3.66% | 3.72% | (-5.4%) |
*Serious
mortgage, auto loan, and personal loan delinquencies are defined here
as those with payments 60 or more days past due. Serious credit card
delinquencies are defined as those with payments 90 or more days past
due. **Projections.
Although delinquency rates are expected to
increase for most credit products, mortgage loans will continue a
downward trend that has seen delinquency rates drop every quarter since
Q3 2013 and declines in delinquency rates for 23 of the last 26 quarters
since peaking at 7.21% in Q1 2010.
“The mortgage market has
improved dramatically, to a point where it has normalized on a
delinquency basis,” Verma said. From an overall consumer credit
standpoint, the mortgage marketplace also stands out from other loan
types, with prime-and-above borrowers representing a larger percentage
of total accounts. This improved risk distribution, coupled with rising
home values, has led to a significant decline in mortgage
delinquencies.”
Delinquencies expected to remain below recession levels
TransUnion
stressed that the delinquency levels projected for all credit products
in 2017, even those that are increasing, will still remain well below
the levels observed at the last recession.
“These projected
increases in delinquency are not surprising, nor are they yet a cause
for concern,” said Verma. “Lenders are adjusting their underwriting
strategies to maintain a good balance between expected losses, consumer
credit access, customer utility, and investor returns—and in the end,
that balance is a benefit to all parties.”
Comparing Borrower-Level Delinquency Rates: Recession Times vs. Forecasted 2017 Delinquencies
Credit Product | Q4 2009 | Q4 2017* |
Auto Loans | 1.59% | 1.40% |
Credit Cards | 2.97% | 1.82% |
Mortgage Loans | 7.16% | 2.11% |
Unsecured Personal Loans | 4.98% | 3.72% |
*Projections.
Additional
forecast details, including breakout analyses of the credit-card,
mortgage, auto-loan, and personal-loan segments, can be found at the TransUnion website.