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Consumer Credit Origination, Balance & Delinquency Trends: Q1 2017

Nidhi Verma
Blog Post06/05/2017
Business Research
Banner image for Consumer Credit Origination, Balance & Delinquency Trends: Q1 2017 blog

Over 171 million consumers had access to a bankcard in Q1 2017, the highest level we’ve seen since 2005, according to our Q1 2017 Industry Insights Report, powered by PramaSM.

More consumer credit trends we observed in Q1 2017 include:

  • Credit Card: Balances increased 7.4% to $693 billion and the delinquency rate rose to 1.69%
  • Mortgage: Originations rose 28.6% to 2.08 million, while the delinquency rate declined 11.9% in the quarter to 2.07%
  • Auto Lending: Originations declined 0.2% to 6.66 million, and the delinquency rate increased to 1.30%
  • Personal Lending: Balances grew 9.7% to $102 billion, while originations declined 10.8% from the previous year

Let’s dig a little deeper into the data behind these trends.

Consumer Access to Credit Cards Grows to Highest Level Since 2005

The card market went through a transformation after the recession. Capital was restrained in this market for many years post-recession. Since 2013, more lenders opened up access to subprime and near prime consumers. The growth rate for subprime consumers was 8.9% in Q1 2017, twice the rate of an average of 2.6% for all other risk tiers.

Of the consumers with access to a bankcard, 16.33 million were subprime consumers, an additional 2.32 million more than just two years ago.

Number of Consumers with Access to a Bankcard Continues to Rise

Q1 2005 Q1 2010 Q1 2015 Q1 2017
162.49 million 149.59 million 160.61 million 171.38 million

Lenders Balance Card Credit Lines with Risk to Drive Growth

The competition for super prime consumers has been fierce, and we are seeing it manifest in higher total credit lines.

With a focus on affluent programs, average total credit lines have increased for super prime consumers. The average total credit line for super prime consumers rose from $29,176 in Q1 2010 to $33,371 in the first quarter of 2017.

At the same time, lenders have decreased average credit lines extended to consumers at the other end of the credit spectrum. As we see in the chart below, lenders have taken a deliberately cautious approach to re-entering subprime card lending by keeping average credit lines lower for risky borrowers.

Average Total Credit Lines Rise for Super Prime Consumers as Lenders Compete for Least Risky Group

Risk Tier Change in Average Credit Line since Q1 2010
Super prime +$4,195
Prime plus +$146
Prime ($967)
Near prime ($651)
Subprime ($1,069)

The growth in credit card access, as well as increase in super prime credit lines, contributed to a 7.4% increase in total bankcard balances, which reached $693 billion this quarter.

Consumer-level Credit Card Delinquency Rate Remains Low

The recent surge in subprime cards has contributed to an increase in the card delinquency rate at the start of the year, but from a pre-recession, historical perspective, we are still at low levels of delinquency.

The 90-day+ consumer-level credit card delinquency rate increased from 1.50% in Q1 2016 to 1.69% in Q1 2017. This is elevated from the Q1 delinquency average of 1.51% observed between 2013 and 2017 and has been anticipated since subprime access began expanding in 2014.

Trends in the Credit Card Market

Credit Card Metric Q1 2017 Q1 2016 Q1 2015 Q1 2014
Delinquency Rate (90+ DPD) Per Borrower 1.69% 1.50% 1.34% 1.50%
Average Debt Per Borrower $5,332 $5,193 $5,144 $5,162
Prior Quarter Originations* 16.00 million 16.71 million 14.52 million 13.53 million

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

Mortgage Originations Grew to Highest Levels since 2012

At the end of 2016, mortgage originations, viewed one quarter in arrears, grew to 2.08 million, the highest fourth quarter level since 2012. Originations grew 28.6%, up from 1.62 million in the fourth quarter of 2015.

The majority of originations (85.6%) were to consumers in the prime or better risk tiers, with the largest concentration of borrowers in the super prime risk tier (32.7%). At the end of the year, only 14.4% of originations were to nonprime consumers.

Mortgage Delinquency Rate Declines

Over the last three quarters, we observed a leveling off of the mortgage delinquency rate, which suggests we may be approaching a natural floor for delinquencies. The mortgage delinquency rate declined 11.9% at the beginning of the year, dropping to 2.07% in Q1 2017 from 2.35% in Q1 2016.

While the mortgage delinquency rate has declined steadily for 15 straight quarters, the significant drop observed this quarter puts us at a level we did not expect to reach until the third quarter this year.

This is a positive sign for the industry, indicating we are recovering at a faster pace than expected. It may also suggest opportunities to cautiously and prudently extend access to low risk borrowers.

Trends in the Mortgage Market

Mortgage Lending Metric Q1 2017 Q1 2016 Q1 2015 Q1 2014
Delinquency Rate (60+ DPD) per Borrower 2.07% 2.35% 3.06% 4.10%
Average Debt Per Borrower $196,772 $191,927 $187,153 $188,628
Prior Quarter Originations* 2.08 million 1.62 million 1.42 million 1.37 million

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

Auto Delinquency Ticks Up as Lenders Pull Back on Subprime Originations

Auto loan balances continued to grow at a more moderate pace in the first quarter of 2017. The year-over-year growth rate in Q1 2017 was 7.3%, the lowest level we’ve observed since Q2 2012. The average auto balance per consumer rose to $18,386, up 1.8% from $18,065. Total auto balances reached $1.12 trillion, up from $1.05 trillion in Q1 2016.

Auto originations, viewed one quarter in arrears, declined to 6.66 million to end 2016, down 0.2% relative to Q4 2015. This marks the second consecutive quarter in which total originations were down year-over-year. Subprime originations had the steepest decline in originations, declining 5%.

The auto loan delinquency rate increased from 1.16% in Q1 2016 to 1.30% in Q1 2017, driven by poorer loan performance in the subprime and near prime segments. Serious auto loan delinquency rates are approaching levels not seen since the recession.

However, it’s important to understand that delinquencies in the auto market never rose to the levels observed for other key credit products such as credit cards and mortgages.

Regardless, with flatter sales volumes and higher delinquencies, we anticipate lenders will evaluate their credit policies for subprime and near prime borrowers to calibrate for the uptick in delinquencies.

Trends in the Auto Market

Auto Lending Metric Q1 2017 Q1 2016 Q1 2015 Q1 2014
Delinquency Rate (60+ DPD) per Borrower 1.30% 1.16% 1.02% 1.10%
Average Debt Per Borrower $18,386 $18,065 $17,512 $16,894
Prior Quarter Originations* 6.66 million 6.67 million 6.32 million 5.88 million

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

Personal Loan Balances Grow While Subprime Originations Slow

Personal loan balances have increased rapidly in the last five years, but we observed a slowdown in the growth of both total balances and average balances in the first quarter.

The total balance for unsecured personal loans grew 9.7% to $102 billion in Q1 2017. One year prior, personal loan balances were $93 million. The year-over-year growth rate slowed compared to prior first quarters, when the yearly growth rate averaged 19.9% between 2013 and 2016.

The average personal loan balance was $7,603 in the first quarter, a slight increase from $7,544 in Q1 2016. In the last five years, personal loan balances have grown by $1,709 from $5,893 in Q1 2012.

While the first quarter usually has lighter volume for personal loans, as consumers use tax returns or bonuses for purchases and to pay down debts, the beginning of 2017 experienced a larger than normal decline.

At the end of 2016, personal loan originations, viewed one quarter in arrears, declined 10.8% from 4.10 million in Q1 2016 to 3.66 million in Q1 2017. Subprime (down 12.6%) and near prime (down 13.5%) originations experienced the sharpest year-over-year drops in originations.

The personal loan delinquency rate also ticked up slightly to open 2017. The delinquency rate was 3.72%, a 3.6% increase from 3.59%. This rise is partly driven by prevalence of adverse selection and online fraud in the personal market.

Trends in the Unsecured Personal Loan Market

Unsecured Personal Loan Metric Q1 2017 Q1 2016 Q1 2015 Q1 2014
Delinquency Rate (60+ DPD) per Borrower 3.72% 3.59% 3.62% 3.95%
Average Debt Per Borrower $7,603 $7,544 $6,876 $6,315
Prior Quarter Originations* 3.66 million 4.10 million 3.85 million 3.27 million

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

To hear more about these trends,  view our TransUnion Q1 2017 Industry Insights Webinar

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