Consumer Credit Origination, Balance and Delinquency Trends: Q2 2018

Matt Komos
Blog Post09/25/2018

Ten years after the financial crisis of 2008, consumers are generally in a much better place. In the aftermath of the crisis, we observed massive shifts in how consumers prioritized and paid their debts.

Now & Then: Changes in Consumer-Level Delinquency Rates since the Financial Crisis

Year/Credit Product Mortgage Loans Auto Loans Credit Cards Unsecured Personal Loans
Q2 2008 3.87% 1.26% 2.71% 4.54%
Peak Level 7.21% 1.64% 3.19% 5.05%
Q2 2018 1.67% 1.22% 1.53% 3.21%

Note that serious delinquency is defined here as borrower delinquency rates of 60 or more days past due (60+ DPD) for all credit products except credit cards, for which 90+ DPD is used. Peak delinquency levels occurred in the following timeframes: Mortgage (Q1 2010); Auto (Q4 2008); Credit Card (Q1 2009); Personal Loans (Q1 2009).

The changes are most evident in the mortgage industry, where delinquency rates increased massively after the proliferation of subprime mortgage lending in the mid-2000s. For auto and personal loans, serious delinquencies rose slightly during the financial crisis, but increases were modest and short-lived. Credit card delinquencies are now half their peak level in 2009.

Balance growth in the last 10 years has been strongest in the auto loan and unsecured personal loan markets; however, all products have seen significant balance growth from their lowest observed values after the recession.

In a recent webinar, we explored how the consumer credit market has changed and discussed credit trends in Q2 2018 by line of business.

Consumer Credit Trends in the Mortgage Sector: Q2 2018
Mortgage delinquency rates declined while originations slowed in the second quarter of 2018. Here are three changes in the mortgage market in Q2 2018:

  • The serious mortgage delinquency rate declined to 1.67% in Q2 2018, reaching the lowest level observed since the Great Recession and a 25 basis point* decline from one year earlier.
  • Despite low delinquency rates, the number of mortgage loans has hovered around 53 million in recent years. At the beginning of the decade, more than 60 million mortgage loans were on the books.
  • In Q1 2018**, non-prime origination market share grew to 16.3% from the prior year. 

What is driving these changes in the mortgage market?
The declines in mortgage delinquency are largely due to better credit quality of recent homebuyers and sustained price appreciation in the housing market. But a combination of historically tight underwriting standards and rising home prices has put pressure on home affordability, particularly at the entry-home level.

Consumer Credit Trends in the Auto Sector: Q2 2018
TransUnion’s Industry Insights Report found that auto originations were essentially flat and tighter underwriting in recent quarters appeared to positively impact the serious delinquency rate. Here are three trends we observed about auto loans:

  • Originations reached 6.79 million, up from 6.73 million in Q1 2017**. This marked the first increase in originations after six consecutive year-over-year declines.
  • As lenders have pulled back on non-prime originations in recent years, total auto loan balances grew by 5.23% in the second quarter of 2018, the slowest year-over-year growth since 2011. 
  • The auto delinquency rate has remained flat, landing at 1.22% in Q2 2018. This marked the third quarter in a row of stabilization in the year-over-year delinquency rate.

What is driving these changes in the auto loan market?
As lenders look to reduce portfolio risk, we anticipate a shift in origination mix through the end of the year, and likely a continued stabilization in delinquency. As new car sales continued an upward trend through the second quarter, we expect to report higher Q2 auto loan originations next quarter. 

Consumer Credit Trends in the Credit Card Sector: Q2 2018
The number of consumers with credit cards grew to an all-time high, and the anticipated increase in serious delinquency continued. Here are three key findings about credit cards from the Q2 2018 Industry Insights Report:

  • The number of consumers with access to a bankcard reached a new milestone of 176 million in Q2 2018, an increase of 2.2% from the previous year.
  • Overall, the average balance per borrower grew 2.2% year-over-year in Q2, primarily driven by subprime growth.
  • Subprime originations** grew 3.9% year-over-year, but lenders reduced credit lines on these accounts by 10%.

What is driving these changes in the credit card market?
As balances hit post-Recession highs, delinquency rates continued to rise and the market appeared more saturated. Bankcard issuers continued to work toward balancing their portfolio risk. We are taking note of the rising delinquencies, but they remain below recession levels.

Consumer Credit Trends in the Personal Loan Sector: Q2 2018
The popularity of unsecured personal loans continued in Q2 2018 as balances skyrocketed to an all-time high. Here are trends in the personal loan market from the Q2 2018 Industry Insights Report:

  • Outstanding personal loan balances reached a high of $125.4 billion in Q2 2018, rising 17.5% from the previous year.
  • At the same time, the number of accounts rose to 19.5 million, up 12.5% since Q2 2017.
  • Despite the immense growth in this sector, the delinquency rate per borrower remains relatively low at 3.21%. Though the delinquency rate rose 19 basis points* in the last year, this was expected due to increases in non-prime originations.

What is driving these changes in the personal loan market?
The strength of FinTechs, as well as the renewed focus of banks and credit unions on the personal loan market, has driven personal loan balance growth. More consumers see value in a personal loan, and new account originations from the below prime risk tiers have increased. Recent growth is also due to increasing capital investments for non-prime lenders.

Financial institutions can use these consumer credit trends in originations, balances and delinquencies to guide their strategies. To hear more about these trends, view our TransUnion Q2 2018 Industry Insights Webinar or visit transunion.com/iir for more information.

*Bps = basis points; 1 bp = 0.01%.
**Originations and new account balances are viewed one quarter in arrears to account for reporting lag.

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