Consumer Credit Origination, Balance & Delinquency Trends: Q4 2017

Matt Komos
Blog Post02/28/2018

The consumer credit market ended 2017 on a high note within the major lending products – auto, mortgage, card and personal loans. Consumers continued to gain access to credit, consumers are paying their debts in a timely fashion for the most part, and balances are rising at healthy levels.

According to TransUnion’s Industry Insights Report, powered by PramaSM analytics, there were 20.3 million more auto, credit card, mortgage and unsecured personal loans during 2017.

Positive Signs: Changes between Q4 2017 and Q4 2016 for Key Consumer Credit Metrics

Credit ProductChange in Number of AccountsChange in Serious Delinquency RatesChange in Average Debt Per BorrowerChange in Subprime Borrowers with a Balance
Auto Credit Card + 4.8% - 1 bps + $206 - 1.7%
Mortgage + 3.5% + 8 bps + $158 + 3.7%
Personal Loans + 7.5% - 54 bps + $443 - 6.7%

Note that bps = basis points; serious delinquencies reflect serious borrower delinquency rates of 60+ DPD for all credit products except credit cards, which uses 90+ DPD.

In a recent webinar, we explored changes in total balances, average debt levels, originations and delinquency by line of business.

Consumer Credit Trends in the Credit Card Sector: Q4 2017
The number of consumers with credit cards remains at an all-time high, but lenders are demonstrating more attentiveness when writing new accounts. Here are three key findings about credit cards from the Q4 2017 Industry Insights Report:

  • Due to the broadening of the credit spectrum, serious credit card delinquency rates continued to increase to 1.87% in the fourth quarter.
  • Average new account credit lines decreased 3.3% in Q3 2017* compared to the prior year, driven by the subprime and super prime segments as card issuers continue deliberate management of access to credit for new accounts.
  • While originations from Q3 2017* decreased 6.8% for all risk tiers, this trend has changed for the super prime tier as originations to those consumers increased 1.2%.

What is driving these changes in the credit card market?
Lenders are continuing to manage risk when writing new accounts. The decrease in originations was driven by continued pullback in high risk tiers.

While super prime originations grew, there was a significant decline in the average new credit line dollar amount. The demonstrated pullback is likely a response to the increased ratio of below prime consumers written in recent years and the associated uptick in credit card delinquencies, thereby controlling overall risk exposure, even at the super prime tier.

Consumer Credit Trends in the Auto Sector: Q4 2017
Though the number of auto loans rose to nearly 80 million in Q4, auto loan growth is slowing. Here are three trends we observed about auto loans:

  • Auto loan balances grew 5.5% between Q4 2016 and Q4 2017, but this marked the lowest annual growth rate since a 5.3% rise in Q2 2012.
  • The number of auto loans grew to 79.4 million in Q4 2017, a significant increase from 75.8 million one year prior.
  • Serious auto loan delinquency rates remained stagnant, improving slightly to 1.43% at the end of 2017.

What is driving these changes in the auto loan market?
Generally speaking, the auto lending sector is performing well as the economy remains relatively strong. Auto lending is stabilizing after years of rapid growth. Originations continued to fall at a faster rate than previous years, balance growth is slowing and delinquencies are steadying. This reflects the continuing tightening of underwriting, particularly for prime and below.

Consumer Credit Trends in the Mortgage Sector: Q4 2017
Mortgage delinquency rates continue to decline, but interest rate rises are impacting new account balances. Here are three changes in the mortgage market in Q4 2017:

  • The serious mortgage delinquency rate declined to 1.86% in Q4 2017 from 2.28% at year-end 2016, marking an annual drop in mortgage delinquency rates every quarter since Q4 2010.
  • Average mortgage debt per borrower rose to $201,736 at the conclusion of 2017, up more than $7,000 from the previous year.
  • But average new mortgage account balances decreased on an annual basis for the third consecutive quarter, declining to $228,563 in Q3 2017* from $235,820 in Q3 2016. This is a reversal from a trend where such balances rose on an annual basis each quarter between Q3 2014 and Q4 2016.

What is driving these changes in the mortgage market?
Rising interest rates have, and will continue to have, a profound impact on the origination mix, reducing refi share. This has put some downward pressure on new account balances, as refi amounts can be higher, on average, than purchase amounts.

Mortgage delinquency rates for Q4 2017 continued to decline, reaching levels not observed since at least 2009, when TransUnion began tracking this metric. This largely reflects recession-era bad mortgages having worked their way out of the system and more recent originations being underwritten to a very high standard.

Consumer Credit Trends in the Personal Loan Sector: Q4 2017
The low delinquency rate for personal loans bodes well for 2018 performance. Here are trends in the personal loan market from the Q4 2017 Industry Insights Report:

  • Unsecured personal loans continued to perform well at the conclusion of 2017, with serious delinquency rates dropping to 3.29% from 3.83% in Q4 2016. This was an especially strong performance compared to the fourth quarters of recent years.
  • Total personal loan balances ended 2017 at $117 billion, up from $102 billion at the close of 2016.
  • Originations in Q3 2017* picked up, rising 6.9% on an annual basis, with much of the increase attributed to growth in loans to prime and above consumers.

What is driving these changes in the personal loan market?
The last quarter of the year is traditionally when personal loan delinquencies rise the most, but Q4 2017 represented the lowest Q4 personal loan delinquency rate we’ve observed since the end of the recession. This strong performance bodes well for 2018.

There are more than 18 million personal loans in the marketplace, which constitutes a 40% increase – or 5.2 million more loans – compared to just three years ago. As traditional lenders return or enter this market, we expect the number of personal loans will continue to rise.

Financial institutions can use these consumer credit trends in originations, balances and delinquencies to guide their 2018 strategies. To hear more about these trends, view our TransUnion Q4 2017 Industry Insights Webinar or visit http://www.transunioninsights.com/IIR for more charts and details.

*Originations and new account balances are viewed one quarter in arrears to account for reporting lag.

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