Consumer Credit Growth, Balance & Delinquency Trends: Q2 2017

Ryan Boyle
Blog Post09/12/2017

Subprime loan originations reached the lowest level since 2012, according to our Q2 2017 Industry Insights Report, powered by PramaSM.

Other consumer credit trends we observed in Q2 2017 include:

  • Mortgage: The delinquency rate declined 16.5% in the quarter to 1.92%, while originations increased by 1.8% to 1.49 million
  • Credit Card: Balances increased 7.8% to $714 billion, and the delinquency rate rose to 1.46%
  • Auto Lending: Originations declined 2.9% to 6.73 million, and the delinquency rate increased 10.8% to 1.23%
  • Personal Lending: Balances grew 10.8% to a new high of nearly $107 billion, while delinquencies declined 8.5% to 3.02%, a new low since TransUnion began tracking the metric

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

Subprime Lending Experiences Broad Declines

Across product lines, we saw a decline in subprime originations at the beginning of 2017. For the first time in a number of years, we have observed this for multiple quarters at a time.

Immediately following the recession, many lenders pulled back on subprime originations to control growing delinquency. As the economy recovered, lenders loosened their underwriting standards, but it appears that this trend is now reversing again. After multiple years of increased subprime lending, some lenders may simply be taking a pause.

Credit Product – TimeframeSubprime originations in Q1 2017Subprime originations in Q1 2016Year-over-year growth 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%

Mortgage Delinquency Rate Drops to Lowest Level in 10 Years

The mortgage delinquency rate dropped below 2% of borrowers for the first time in over 10 years. Because delinquency levels reached 7% during the recession, mortgage delinquency has taken longer to recover. Stringent underwriting requirements enacted since the Great Recession have made their mark on performance in this market. We’re now below the historical norms for mortgage delinquency, and we anticipate delinquency levels will remain low the rest of this year.

Viewed one quarter in arrears, mortgage originations remained relatively steady in the first quarter of 2017 at 1.49 million. More than 83% of mortgage originations were in the prime and above risk tiers in the first quarter of 2017.

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 refinances, but a rise in interest rates can reduce refi activity. With mortgage rates starting to rise after a sustained period of low rates, consumers are less likely to secure a better rate through a refinance transaction. As the mix of originations shifts away from refinancing and more toward purchases, we observe lower average new account balances.

Trends in the Mortgage Market

Mortgage Lending MetricQ2 2017Q2 2016Q2 2015Q2 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

Total card balances reached $714 billion, driven by growth in super prime card balances. 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 that credit and growing their card balances.

We predicted a slight rise in the credit card delinquency rate following the growth in non-prime access over the last few years. 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. While this increase may seem large, delinquency levels remain well below the 3% delinquency rates observed after the recession.

Trends in the Credit Card Market

Credit Card MetricQ2 2017Q2 2016Q2 2015Q2 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* 14.99 million 15.28 million 13.50 million 12.13 million

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

Auto Delinquency Rate Rises and Originations Slow

For the past several years, lenders have offered more financing opportunities to non-prime consumers. As a result, we expected to see a slight rise in delinquency. The auto delinquency rate reached 1.23% in Q2 2017, an increase of 10.8% from 1.11% Q2 2016. While any increase in delinquency is worth monitoring, we remain at very low levels of auto delinquency.

Following years of originations growth as consumers re-entered the auto market after diminished demand following the Great Recession, we have entered a cycle of declining origination volumes. Viewed one quarter in arrears, auto originations declined to 6.73 million in Q1 2017, marking the third consecutive quarter of year-over-year declines in auto originations. We do not view this as a sign of a market in distress, but rather, a natural plateau after a sustained interval of growth.

Trends in the Auto Market

Auto Lending MetricQ2 2017Q2 2016Q2 2015Q2 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 for Delinquencies and Balances

After a difficult 2016 for many FinTech lenders, we observed growth and stabilization in key metrics such as balances and delinquency rates. The personal loan delinquency rate declined 8.5% to reach its lowest level on record.

Personal loan balances also reached a new milestone in Q2 2017, growing 10.8% to reach nearly $107 billion. While balances grew, the growth happened at a slower rate than the average Q2 growth rate of 24.7% for the past three years.

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. More than 16 million consumers have a personal loan, and we expect this trend to continue as more banks and credit unions re-enter the personal loan market.

Trends in the Unsecured Personal Loan Market

Unsecured Personal Loan MetricQ2 2017Q2 2016Q2 2015Q2 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.

Lenders can use these consumer credit trends in originations, balances and delinquencies to create or adjust their 2017 strategies.

Visit http://www.transunioninsights.com/IIR for more charts and details about our Q2 2017 Industry Insights Report or view our TransUnion Q2 2017 Industry Insights Webinar here.

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