Extra Credit Podcast 42: What Q2 2026 Credit Data Reveals About Today's Consumer Credit Market

Josh Turnbull, TransUnion: Welcome to Extra Credit, a TransUnion^® podcast. I'm Josh Turnbull, joined by my co-host Craig LaChapelle. Today, we have a great episode where we're joined by Leo Tapiero who's one of our sales leaders. Leo's going to really walk us through the numbers we saw in the last quarter's credit data but put a lot of market context behind that as he asks questions of Craig and me on what we're seeing and what we think it means and where the market's going from here. So we hope you enjoy this episode. And a reminder you can subscribe to Extra Credit and listen to prior episodes we've done, other quarter readouts, as well as some interesting guests we've had on in the past months. This podcast is available anywhere you find podcasts, Apple, Spotify or on TransUnion's webpage. And so with that, Craig, Let's get into it. Hope you enjoy.

Craig LaChapelle, TransUnion: Welcome everyone to the next episode of TransUnion's Extra Credit podcast. As we do every quarter, we turn the mic over to one of our colleagues or customers to quiz us on recent quarterly credit market performance across auto, card, consumer lending and mortgage, all provided in our quarterly consumer insights report. So today, we welcome Leo Tapiero, one of TransUnion's client relationship leaders. Leo leads sales to our largest customers and is based in California. So welcome, Leo, and we'd love to hear a little bit more about your background.

Lionel Tapiero, TransUnion: Well, glad to be here. Thank you for having me. So I lead a business development team here at TransUnion. We mainly focus on our largest FinTechs. My background, I started as an investment analyst, moved into financial advisory, and then into early-stage FinTechs building a robo-advisor. So that journey took me into the Bureau world around COVID, and I've never looked back. So I'm looking forward to the discussion today and diving into all the great topics we have.

Craig LaChapelle: Great. We're excited to have you here.

Lionel Tapiero: Well, guys, before we get into all the broader themes, I think it's fair to say let's hit the highlights right up front. What jumped out at you this quarter?

Craig LaChapelle: Hey, Josh, I'll take a crack at this one. The first one, at least to me, was mortgage originations. They were up 26% year over year. That's a much bigger number than a lot of people would expect given where rates still are. Most of that story is actually refinancing activity coming back. Rate and term refi alone was up over 200%. But to me, it also says consumers and lenders are adapting to the rate environment rather than sitting around waiting for rates to fall.

Josh Turnbull: And Leo, Craig knows, and you know too, personal loans are near and dear to my heart. So that's one I pay a lot of attention to. And their balances were up 10% year over year, topping $280 billion. Originations were up 20%. So we've now got just under 27 million consumers with a personal loan. I think the interesting piece there is the average debt per borrower basically stayed around exactly the same, a little less than $11,500. So more people are using the product but without dramatically increasing the per borrower balance, which tells me consumers are being pretty intentional about how they're leaning in there.

Lionel Tapiero: And when you're saying the nearly 20% growth, we're talking over a year, right? So you're comparing last year's quarter to this quarter. Okay, thank you.

Josh Turnbull: Yes. Correct. Thanks for the clarification.

Lionel Tapiero: Mortgages, as Craig said, and then personal loans, as you covered, Josh. Do we have anything else?

Craig LaChapelle: Yeah, let's take a look at bank card. Originations were up 12%, which marked the sixth consecutive quarter of growth. The average new credit line increased over 8% to a little over $6,400. That's noteworthy because the last couple of years, we've been talking about tightening or mitigating increases in those credit lines. This, to me at least, is one of the clearest signals we've seen lenders putting capital to work again to compete for customers, particularly in the less risky segments.

Josh Turnbull: And Craig, I would add on to that. I think as they're out there competing for customers, we're continuing to see the number of people with credit grow. So we've got 262 million active consumers with credit now in the US, which is up 4 million over a year ago. So despite all the headlines around affordability and a K-shaped economy, which are real concerns and things that are happening. We continue to see consumers leaning in and actively engaged in consumer credit.

Lionel Tapiero: Maybe Craig, do you have one more to add?

Craig LaChapelle: Yeah, Leo, let's take a look at VantageScore®. It's been flat at the median number anyway, about 713. It's been at that level for about four years running. So consumers in aggregate haven't gotten materially riskier. That's important for every other thing we're going to talk about.

Lionel Tapiero: That's right. So maybe let me play it back, right? We have mortgage originations up 26% year over year, personal loan balances at a record $281 billion, and originations also on personal loans nearly up 20%. Bank card originations are up almost 12% and credit lines are expanding again. So we have 262 million Americans actively using credit with a median VantageScore, as you pointed out, holding steady at 713. We also know spending is up. So all those sound like incredible growth stories. Is that right?

Craig LaChapelle: Yes, sir.

Josh Turnbull: And I would say they do, but it's a more nuanced growth story than the ones we've talked about in, say, 2021 and 2022 when we just saw pure growth.

Lionel Tapiero: That's how it feels looking at the news and being exposed to countless sources of information. So can you tell us more, Josh?

Josh Turnbull: Yeah, and Leo, you’re embroiled in some of these conversations with some of your customers as well as they pull apart some of the numbers and try to figure out where to grow, how to grow. But I think the biggest mistake you can make is looking at those numbers and saying, wow, it's growth across the board. So consumers must feel great. And we're seeing lenders feel really good about where things stand. It's more nuanced. It’s a growth market, but it's more nuanced. Consumers still want credit and lenders are increasingly willing to provide it, but I think both sides are being much more judicious in terms of how they participate, where they extend credit, when they want credit.

Craig LaChapelle: Yeah, Josh, that's exactly right. The industry today feels very different than it did during COVID or the post-pandemic expansion. Back then, growth was really broad-based. Today, growth is targeted. That's true in bankcard, and I referenced this a little earlier, where the biggest line increases went to super prime and prime plus the less risky credit segments, not evenly across the tiers. It's true as well, as Josh said, in personal loans, where lenders are now roughly 45% of originations and being very specific about what kind of subprime they'll write. And it's true in mortgage where growth is refi-driven, not loosening of the credit box.

Lionel Tapiero: And that's definitely a going the sentiment I hear from my clients in not loosening the credit box. So if that's the story, how should we think about today's consumer behind those numbers?

Josh Turnbull: I would say adaptive. They're not sitting on the sidelines waiting for conditions to improve. They've got bills they need to pay. They've got things they want to do today, but they're changing how they borrow. They're changing the products they use. They're changing how they manage their cash flow. You can see it everywhere. Homeowners are tapping HELOCs instead of refinancing first mortgages, which is not surprising given the rate environment. We're seeing that in terms of the mix of used car sales versus new car sales, middle-class households in particular, really using personal loans as the de facto refi tool for a number of things. So all of these things are, certainly there's a supply aspect in terms of how lenders are helping consumers think about those products and think about what's available. But it's definitely an active adaptation on the consumer front, not just kind of a passive sitting by.

Craig LaChapelle: Yeah, and if you look at the other side of the coin, lenders are adapting right alongside them as well. The discipline we’re seeing in the cycle, smaller loan sizes for subprime borrowers, tighter targeting of super prime for line growth, more precise underwriting at the FinTechs. It's not a temporary posture. It looks like a durable operating model.

Lionel Tapiero: Let's push on this a little bit because if we think everybody's disciplined and consumers are behaving intentionally, lenders are targeting more carefully, then why does the sentiment data look so grim, right? We saw the University of Michigan sentiment was at 55.2, I think, in July. That's roughly down 10% from a year ago. Can you comment, Craig?

Craig LaChapelle: Yeah, absolutely. That's the tension in the quarter. Are folks climbing a wall of worry or is this foretelling about a coming downturn? The credit performance data and labor market data, 4.2% unemployment, GDP growth moderate at 1.5%. Core PCE, a 3.3% little higher than we'd all like. It does describe a measure resilient economy. Consumer sentiment gets at something that's much more anxious. Both are true and they're both worth taking seriously.

Josh Turnbull: And I think that's why this K-shaped economy story, in some ways,it feels like we've been having the same conversation since 2022 or 23 on this thing on the back end of a lot of the pandemic measures. But in many ways, that's why it still refuses to go away is that it's maybe an imperfect frame, but it's trying to really explain how these two things can be true at once — in terms of everything Craig just rattled through, with all these strong economic signals and Leo, the point that you brought up in terms of how consumers are perceiving or experiencing the economy.

Lionel Tapiero: It's great because I think the K-shaped economy is a topic we should cover next.

Josh Turnbull: Let's do it.

Lionel Tapiero: Well, you two have leaned into the K-shaped story a lot in your public commentary. So I'm also hearing about the E-shaped economy. So can you tell us what it all means?

Josh Turnbull: Leo, you and I have had some of these conversations with some of your customers, but the K-shaped, it's not as clean as the headlines make it sound. And I think there are a couple of pieces that have been really compelling. There was a piece from Jeff Horwich at the Minneapolis Fed earlier this year that looked at data from Moody's, Bank of America, the New York Fed, and one other, and argued the actual divergence, if it's there at all, is maybe a lot subtler than kind of this K-shaped notion. In the New York Fed's household data, in fact, doesn't really show it. But Bank of America, they looked at, in something they put out recently, it talked about an E-shaped rather than a K-shaped with three tranches. And I found that really compelling where they divide people into three categories, which is, the top tranche of the uppercase E. I’m able to pay my bills. I'm confident. I do not live paycheck to paycheck. The middle tranche, I live paycheck to paycheck, and I am, or I live paycheck to paycheck, but I am able to pay all my bills right now. And then the bottom, I'm living paycheck to paycheck and I'm really struggling to meet all of my obligations. I think that one made sense, but again, it's not necessarily as clean or something that could be reduced down to a simple sound bite.

Craig LaChapelle: Josh, that was a great answer. I always love getting a new construct or a new letter to explore. One of the things, if you remember, we explored the K-shaped credit market in more detail earlier this year. We published data showing super prime, had grown roughly 380 basis points since 2019 while all the middle tiers compressed. And that research really resonated with a lot of our customers because it captured something real and helped them understand a little bit more about what they're seeing in the book and in their prospect market. But the risk of any big narrative is that it becomes an excuse to stop thinking. When a lender opens a meeting with the economy is K-shaped, so we're going to be cautious. What that usually means is we're going to keep doing what we've been doing. That's not a strategy. By the way, I've never heard anyone say that, but if we did hear that, I would be skeptical. All our customers know you have to take a look at your own unique set of customers, your prospecting strategy, and your risk tolerance to create the appropriate strategy for your organization.

Lionel Tapiero: To your point about strategies, right, strategies are informed by numbers, data, and so we're going to spend a little bit more timeon what does the credit data tell us about K-shaped or E-shaped as opposed to any spending data. So let me start with Josh.

Josh Turnbull: I think it's a fair critique of the K-shaped term in that it's more useful in credit than it is maybe in consumer spending overall, Leo, to your point. So if you think about that K-shaped, if you think about where consumers are in the credit spectrum right now, super prime, 41.2% of the population, That is a near record and up 380 basis points from 2019. Subprime is 14.2% of the population. That's back to where it was in 2019 after dipping down. It was just a little over 11%, I think, kind of in the peak stimulus days, the pandemic. So the compression is certainly in the middle tiers. Prime plus, prime near-prime as people move to the poles or the ends of the K, if you would. That's a hollowing out of the middle more than it is a divergence at the extremes.

Craig LaChapelle: Yeah, if we're going to stick with the K construct, it's really a top-heavy K, right? So what we're watching is a bifurcation in behavior, not just in scores. Super prime consumers are transacting on their cards and paying them off. You can see it in the fact that prime plus and super prime bankcard balances actually went negative year over year. As their lines went up. Let's say that differently. The average bank card balances actually decreased. They're getting bigger lines and they're not using them. While subprime and near-prime are using their lines to smooth cash flow. And that's where the balance growth is. Two very different postures inside the same credit market.

Lionel Tapiero: That's very interesting, because if we think about the K-shaped is more evident in credit behavior than it is in spending; it feels like the story isn't necessarily only about consumers, but rather also about lenders, right? And this is obviously the lending ecosystem. Is the base of our client base. So the lenders are ultimately the ones deciding who gets the bigger lines. Is that right, Josh?

Josh Turnbull: Yeah, no, and it's a fair challenge, Leo. It's both. So lenders have absolutely reinforced the K by putting most of the powder out there, the new dollars at the top of the risk spectrum across the board in terms of when you look at the entire wallet. And you can see it in bank card where super prime got the highest line growth. But the demand side is also real. Subprime consumers are looking for products that help them. Craig, you just made the point, I think, really smooth those expenses in an environment that’s still seeing inflation above where we would all like it and where that is felt disproportionately by folks who have lower incomes. Super prime consumers, on the other hand, many of whom have low-rate first mortgages, they're the ones out there looking for HELOCs and unsecured personal loans as convenience products not necessity products.

Lionel Tapiero: Well, let me play the challenger card. Every time supply loosens, we go through a version of, well, this time it's different. Is it really? So how do we know the industry isn't just relaxing because of the memory of 2022 has faded?

Josh Turnbull: That's a fair question. And let me answer directly. I think the reason I would argue this time is different, carefully and hopefully, is that the loosening is incredibly targeted. So if you look at unsecured personal loans, subprime originations, we've talked a lot about people putting loans into super prime, the lowest-risk population. If you look at unsecured personal lending, subprime originations are up 29% year over year, and subprime is now about 38% of new unsecured personal loans. Those are big numbers. But the average loan size for subprime borrowers fell about 10% year over year. We're also seeing a lot of these lenders lean in and use alternative data, do other things to really try and parse the field as they're making underwriting decisions or pricing decisions here. So absolutely, Leo, to your question, it’s a growth story; more subprime borrowers, but smaller loans per borrower. And that's the opposite of what happened in 2021 and 2022 when the numbers of borrowers and the loan size grew together. So discipline is showing up in a number of charts. Which is allowing for some of this confident growth.

Craig LaChapelle: Yeah and let me double click on mortgage. I mentioned earlier that mortgage was up materially year over year, driven by refis. If you look at it in a little more detail, purchase mortgage share dropped to 68% of all originations because refi share went from a little under 19% to almost 32% year over year. That's a rate reaction, not an underwriting change. A growing share of that origination volume is going to Gen Z and Millennials. Nearly 60% of all originations. So there's a generational shift underway, which makes sense in who's entering the market not a credit box widening.

Lionel Tapiero: All good points. So now let's go from the lenders' point of view, right? The takeaway isn't the industry is broadly loosening, right? It's more so we’re seeing better targeting and leveraging the data lenders have at their disposal more efficiently. So therefore, as a lender, I should ensure I either do so now or make sure I stay ahead.

Josh Turnbull: Yeah, Leo, and one of the strongest areas of growth you've seen in your customer base is on analytics engines, analytics enablement, everything to support, rapid development, deployment of new models, taking in data from one of our sources. There's a reason for that. It's because the operational implications here are that you have to know your target with a much higher degree of precision than you did in prior times. So as the market grows, you can either be the one that's out there with smart models being really good about who you're targeting and seeing the results or you can be the person who's growing with the same kind of risk strategies you relied on for a time as everyone else is picking off the best of the best.

Lionel Tapiero: That's right, and I would say it's true throughout the lifecycle. We can have targeting models on the marketing side, we can have underwriting or prequalification models, and then all the way to following a customer to optimize their... The borrowing experience and improve lifetime value. One of the things you both keep saying is consumers are behaving differently than they did in prior cycles. So I would kindly request some examples.

Josh Turnbull: So Leo, the clearest answer I can think of immediately is in personal loans, and that's really purpose, which is debt consolidation and bridging. So we've been calling personal loans for a long time kind of the middle-class refinancing options. Households are using unsecured installment loans to move credit card balances, medical bills, other things to lower cost, fixed payment, predictable structures. That's the closest thing that middle-class consumers have to a refi lever since most of them can't refinance their first mortgages. At the same time, we're seeing pretty tremendous growth in terms of home improvement loans, those types of things. For unsecured personal loans, looking at the top end of the credit spectrum as well.

Craig LaChapelle: Hey, Josh, you brought up mortgage. So let's talk a little bit more about mortgage. Eighty-five percent of outstanding mortgages carry an interest rate below 6%. Those consumers are basically locked in with today's higher rates. That drives behavioral changes. So what they're doing instead of refinancing the first mortgage is tapping equity through HHELOCs and home equity loans. We've seen HELOC balances up over 14% year over year, home equity loans up over 12%. They're hitting their highest origination volumes since really 2008. That's the same consumer in the same house but just accessing liquidity differently. And you can actually see this in Home Depot's recent earnings announcement. WWhat they're saying is, and I'm paraphrasing, people aren't moving as much, but they're investing in their house. And they're doing it through those HHELOCs and home equity loans.

Lionel Tapiero: So it's really not that consumers are pulling back on housing-related borrowing. It's just they're doing it through various products — certainly new ways of accessing these products with the digital economy.

Craig LaChapelle: Yeah, exactly. And if we look at auto, we see the same substitution behavior in a little bit different form. Auto originations, much more muted growth. A lot of that has to do with car price and affordability, but up just 1.3%. But used-car share moved from 55% to 60% in a single quarter. That's a pretty big change in one quarter. New vehicle originations were down over 5.5%. That's not a market where consumers gave up buying cars. It's a market where they move down the price ladder. And there are also stretching terms. And there's, whether you're a consumer, there's different schools of thoughts on whether it's a good move or not. But 84-plus-month new car loans went from 14% of originations in 2019 to 22% in Q2 of 2026. On the used-car side, which is a little scary to me, went from 5% to 11%.

Josh Turnbull: And I think, Craig, another layer is turning out differently than maybe we expected. We all were looking at the expiration of the EV tax credits and expecting that share of sales to decline. EV registrations rebounded in early 2026, even after that tax credit expired. And It's not maybe totally surprising, driven by the fuel prices more so than EV price declines. But consumers, as you said, I think are re-optimizing across multiple dimensions of cost of ownership, be that your mortgage, be that fuel price, car sticker price, whatever it is, all at once.

Lionel Tapiero: It really is a story where the consumer is more informed than before and much more effective than before.

Josh Turnbull: Yeah, I think you're spot on, Leo, and that's part of the story we in the industry can easily miss, is when you see a delinquency number tick up 44 basis points in one product, it's easy to say, oh my gosh, consumers are stressed. But the consumers who are stressed aren't standing still. They're actively re-engaging in how they hold, how they manage, how they pay down debt. And that has real implications for how lenders should design products, how we should market to these consumers, and how we should underwrite.

Lionel Tapiero: Back to the point you made earlier, the speed at which all this happens, right, supported by analytics and tools, of course.

Josh Turnbull: Yep.

Lionel Tapiero: All right, well, Josh, I know this is one of your favorite topics. The bottom of the K, and so I'll point to you first. What's happening in subprime that people are misreading? Isn't subprime behaving like subprime always does?

Josh Turnbull: Didn't I say the K-shaped was getting long in the tooth earlier in this conversation, Leo?

Craig LaChapelle: Yeah.

Lionel Tapiero: It feels like it.

Josh Turnbull: I know. No, the most misread number, I think, in the entire second quarter data that we put out is, at least in unsecured personal lending, the consumer-level delinquency, which is up 44 basis points to 3.81. If you stop reading there, you'd really conclude subprime is deteriorating, lenders should pull back, and that would be wrong.

Lionel Tapiero: Subprime behaves like subprime, so tell me more.

Josh Turnbull: Well, if you flip the balance-weighted view, Leo, and I think that, I get it, the consumer level, that's looking at the number of consumers who are delinquent, that's the headline number the Wall Street Journal or others tend to gravitate to. But if you flip that and looked at the balance-weighted view, the 60-plus delinquency rate actually went down four basis points to 1.95%. So you have this divergence between the number of consumers who are going delinquent, but the actual dollars that are going delinquent, so to speak.

Craig LaChapelle: So said another way, there's more people in your collections queues, perhaps, but with less outstanding risk.

Josh Turnbull: Exactly. So when you look at the dollars lenders are exposed to, which is what lenders care about from a dollars-and-cents standpoint, Craig notwithstanding kind of some operational expenses, performance actually improved.

Craig LaChapelle: And that's another reason why the quarterly readout we did of our consumer industry insights report was, I thought, one of the more analytically interesting ones we've had. The research team walked through the vintage charts and the subprime UPL vintages from 2024 and 2025 are outperforming the 21 and 2022 cohorts’ material. That is concrete evidence t the industry has actually learned something from the prior cycle.

Lionel Tapiero: Concrete evidence is comforting in this case, so we learn something at every cycle. So, what would we say is different this time, and what are we learning now?

Josh Turnbull: I think, Leo, we're in a good way, coming back to the question you posed to us earlier of why do we have this conceit of, hey, this time is different. And I think two things aren't getting enough credit here. One is the operating model. So the customers you spend your days with, Leo, some of the bigger FinTechs, all the FinTechs are now roughly 45% of unsecured personal loan originations and their loan lifecycles, their feedback loops — they're much shorter than traditional installment lenders, than what traditional installment lenders had just five years ago. When you look at a late-2024 vintage, and seeing it perform worse than expected, they knew it in early 2025 and tightened by midyear. So compare that to how banks reacted to 21 vintages, often not until two, three years later. The second way is the way risk is managed at the underwriting layer. It's not just tighter cutoffs. It's, we've talked about, and not just in subprime, but it's smaller loan sizes. Dynamic loan assignments for the same borrower. So that discipline is showing up in the fact that subprime originations are up 29%, but the loan size is down 10%. It's showing up in what we just talked about, this divergence between the consumer-level delinquency, but the actual dollars that are going delinquent.

Craig LaChapelle: And let me just add another point here. Our analyst team made this point, so I'm just reiterating it during the readout. Off-lease, auto inventory is finally normalizing, which is easing affordability, which is easing pressure on subprime auto borrowers. Subprime consumers are being helped by underlying supply conditions in a way that weren't there in 2022. Still affordability pressures, like I mentioned earlier, but it looks like we have a pressure release valve, so to speak.

Lionel Tapiero: Good point on sort of what the auto industry can tell us about the consumer. Back to bankcard subprime, it tells a different story. You said subprime bankcard origination growth actually slowed down. Is that right, Josh?

Josh Turnbull: Yeah, it did. It came down from the mid-20% range to about 14%. I think, Craig, you mentioned that earlier. And issuers are definitely tempering their focus towards super prime. So bankcard is in a slightly different posture than UPL. In UPL, again, FinTechs are still leaning into subprime aggressively but with smaller loans, whereas in bankcard, traditional issuers are pulling back a little bit on subprime. And marketing intensity, even as they extend larger lines to those top tier of super prime customers. So same underlying discipline, just a slightly different expression in terms of how it's being applied in market.

Lionel Tapiero: Makes sense. So Craig, what do you tell a lender who says, I don't want to touch subprime because the delinquencies are up?

Craig LaChapelle: Well, certainly we can offer advice. I'm not sure we tell them anything. But the thing they should be looking at, and a lot of them do, is the balance-weighted view before they make that call. If your exposure isn't rising, even though your delinquency count is, that's not the same as a portfolio getting worse. It's really a portfolio that got bigger in a controlled way. And I tell them to look at where in subprime they're playing. Deep subprime and higher-risk subprime perform very, very differently. And Fintechs have been most successful in this cycle, have gotten sharp about that distinction. It comes down to finding the right opportunities and swap sets.

Lionel Tapiero: People that know subprime, they're doing fine because they know the space and they know how to manage those books. People that are trying to get in now. It's yeah, a very difficult enterprise to build.

Josh Turnbull: It's a tough time to cut your teeth. Yeah.

Lionel Tapiero: If we're saying subprime is more nuanced than the headlines, then where should lenders be looking for real stress signals? This is the part where I want to be honest, uncomfortable and open up.

Josh Turnbull: All right, so let me see how uncomfortable I can make it. Three places. I'll take the first because it's the one that surprised me the most this quarter, which is prime-and-above delinquency in UPL is getting worse, which is the opposite of what you'd expect if the K-shaped story was the full story. When we started digging in, some early analysis certainly showed credit washing, synthetic fraud, some other, what I would say are controllable issues, certainly played into some of the year-over-year comparisons and were driving up delinquencies. In that particular part of the market, so that is absolutely a first place I'd look.

Lionel Tapiero: So, credit washing, can you walk me through that? What does that mean?

Josh Turnbull: Yeah, so credit washing is the suppression or the removal of legitimate derogatory trade lines from a credit report, usually through the dispute process. And people do that for the purpose of temporarily inflating a credit score, removing derogatory information so that you can obtain credit while that's temporarily or permanently off your credit file. Our early read is that’s a material portion of the population of super prime consumers that obtained an unsecured personal loan in 2025 and went delinquent. So it’s a yeah, you can look at that on the surface and say, oh wow, delinquencies are up in that credit tier. But if you kind of peel that apart and look at it, you see some differences between originations where you tend to not have a deep relationship with that consumer versus bank originations where you've got a deep relationship with a consumer. And so there's different fraud risks. And you see that expressed in the differences in delinquency rates between those two borrower sets.

Craig LaChapelle: Yeah, and this is also where the fraud versus stress distinction becomes operational, not just analytical. Lenders shouldn't treat fraud-driven delinquency as if it were a consumer stress. If they do, they're going to pull back on legitimately good borrowers and actually waste collection spend on customers they're very unlikely to ever see a response if they're fraudsters.

Lionel Tapiero: So one of the fraud signals basically is finding a way to arbitrage the system to not call it again, credit washing. So we have one, we also have ways to combat that. So what's the second one?

Craig LaChapelle: FHA mortgage delinquencies at the 60-plus level exceeded 1.6%, up 21% year over year. And those FHA loans now account for over 48% of all 60-plus days past due mortgage accounts, 90 plus is over 1.1%. This is the first time in a Q2 that mortgage delinquency has actually exceeded pre-pandemic levels. When our research team broke out the account-level changes by product, FHA was far and away the sharpest riser. Freddie Mac was next, then declines in jumbo and VA, or excuse me, then declines in jumbo and in the VA. Geographically, Houston, Atlanta, Tampa and Philadelphia have the highest 90-plus days past due rates. Phoenix, Dallas and Houston are the fastest growing.

Lionel Tapiero: Should we be thinking about FHA as an affordability problem or a credit box problem? Both, and I think that's why it deserves more attention than it's getting. Those borrowers tend to be first-time buyers, tend to have less equity, tend to have lower incomes, and are more sensitive to shocks, whether it be taxes, insurance, payment resets, things of that nature. The concentration in a few high-growth MSAs also suggests a home price normalization story in specific markets. But the line is, if you're going to bet on where the next round of losses show up in housing, this is where you put your money.

Josh Turnbull: And then just to round this out, I would say the third stress signal, Leo, that Craig and I were talking about here, as we put our notes together, is auto affordability. So this isn't a delinquency spike, it's a chronic condition. Auto 60-plus days past due at the account level right now. So number of accounts, 1.33, which is the highest second-quarter level in the data set we've got. But the year-over-year change was only two basis points. So it's not really accelerating. What is accelerating is the mismatch between monthly payment growth and wage growth. When you look at the charts on these, it's pretty incredible. And so you see the new and used monthly payment growth versus wage and inflation growth. It's not even close. Consumers are absorbing that today and moving, as we've talked about, to used cars, stretching the terms, delaying other purchases, using refinancing tools. These are the coping mechanisms, but these coping mechanisms have the limits.

Craig LaChapelle: Yeah, and Josh, the sentiment story reinforces this. Sentiment at 55 versus 61.7 a year ago, in the Michigan study. Consumers are telling us they're stressed, even when the delinquency data says they aren't yet. There's a lag between how consumers feel and when it shows up in their credit performance. We should be listening to the feelings a little more than we are. It goes back to what I mentioned earlier about the tension in the market.

Lionel Tapiero: It feels like we did pretty good being uncomfortable or comfortable in the uncomfortable. So we have subprime, much calmer than the headlines. The surprise stress in places nobody is talking about yet. So we highlighted credit washing and fraud in personal loans. FHA concentration in mortgage and then the slow burn in auto affordability.

Josh Turnbull: I think that's an honest read, Leo.

Lionel Tapiero: So anyway, before we call this a day, do we have time for one more? I really have something that's been truly bothering me and I'd love to bring it up since I'm a guest. Can I take a shot?

Craig LaChapelle: Absolutely.

Josh Turnbull: We would love to unbother you.

Lionel Tapiero: Well, so this... Again, this is sort of a personal thing and we'll go into that. In my explanation, right? Every time I watch a game on TV or even go down the street to pick up my kid at school, I see an ad for a gambling app, right? And I'm including prediction market apps in my definition of gambling. Might be regulated differently, but I really think about the consumer behavior and to me it's the same. Right. And it really irritates me that most of these companies are able to advertise their services as money-making activities or worse, a substitute for investing. It's not, right? The expected value of gambling dollars is basically near zero. Otherwise, you wouldn't have casinos in Vegas that are... that beautiful and they treat you to be there. While you might lose, right, when you invest, if you do it for the long term and I think fairly carefully, you should be able to make money. Different than day trading, I'm talking about long-term investing. So, as I mentioned before in my intro, I spent some time as an investment advisor. I still have my licenses, so I'm really sensitive to this, right? So... let me bring that back to the rest of the discussion in sort of a simple way. So, with that in mind, where do we see gambling dollars come from? Where would they go otherwise? And how does gambling affect disposable income and credit behavior, credit repayment? So that's what I'd love to unpack with you for a few minutes if you're up for it.

Craig LaChapelle: It's interesting on how that segment operates. Someone very close to me does very, very well across all those apps. And what they do when they do, if somebody does too well and wins a lot, you know what they do? They kick you off the app or they limit the size of your bet or the frequency of your bet. So they have really good risk management over there. But it doesn't seem quite fair.

Josh Turnbull: I think that in other ways, it's nothing new. So to the American populace, if I go back, gosh, almost 20 years probably, when... that was part of a group we were talking about how to make savings cool and how to make savings fun. Some of the research a professor who was then at Harvard had done looked at the average, exactly, in past books, looked at the average amount Americans spend on lottery tickets, just the scratch-off tickets.

Craig LaChapelle: Toasters, right? Josh, toasters.

Josh Turnbull: Every year, and again, these are 20-year-old numbers, I think the average American household spent 600 some dollars a year on scratch-off tickets. The average household in West Virginia, it was over $2,000 a year. Kind of mind-blowing numbers. But I don't think that this, the advent of some of these prediction markets as... my ticket to make a lot of money overnight. That’s something that's been part of our experience for many, many years. This is just, I think, the latest expression of that. But I think you ask a good question, which is where does that money come from? Who's doing it? Who's doing it from across the income spectrum. When you look across the income spectrum, I think we know what those answers are, but certainly the ease and the proliferation of these apps is something that I think about if I'm a lender as well.

Lionel Tapiero: I think lenders should. The numbers I have in mind are around $400 a month in that type of spend for those who engage in these activities. And then the other number I saw yesterday that also kind of hooked me was 27% of Gen Z consider prediction or gambling apps as part of their investing long-term strategy.

Josh Turnbull: If you think about this from a lending standpoint, that's one of the reasons why, with some of the transaction- level data TransUnion has for people that work with us on deposit or credit card, projects and other work that we do to help lenders bring together data from across places — having that data on your own customers, understanding where that behavior is prevalent, where it's not. That is, I would imagine, a helpful risk indicator as well, or something you could understand about your customers or your prospects if you have that data. And what does that mean from a risk standpoint? How do you employ that?

Lionel Tapiero: Yep, and I think that's what I'm hearing a lot of my clients ask and how we counsel them to think through this because it's not necessarily an underwriting signal, rather a general borrower profile or member profile that needs to be considered in the grand scheme of things. Now, a lot of these FinTechs, offer this as part of a suite of larger products. So maybe they have an advantage at understanding that population better.

Josh Turnbull: Yep, but I think it's a great question.

Lionel Tapiero: Well, thank you for giving me the chance to air it out.

Craig LaChapelle: Leo, we've run out of time. This has been one of our better sessions in a while. Really appreciate you not only quizzing us but offering your informed perspective as well. I know I appreciate it, Josh does too. I'm sure the audience will appreciate it as well.

Lionel Tapiero: The tell will be if you invite me, so I appreciate it being here.

Josh Turnbull: Thank you, Leo.

Craig LaChapelle: Yeah, thanks again. Have a great evening.

Lionel Tapiero: Thank you.

Craig LaChapelle: Thank you, Leo, so much again for joining us. For those listening, don't forget to subscribe to Extra Credit to make sure you can catch each new episode when they drop. Just search Extra Credit TransUnion wherever you get your podcasts and hit subscribe. Thanks. We'll catch you next time.