Lenders Extending More Loans to Subprime Consumers as Credit Market Continues to Exhibit Signs of Strength

Chicago, Illinois, UNITED STATES

Q3 2018 TransUnion Industry Insights Report features latest consumer credit trends

CHICAGO, Nov. 15, 2018 (GLOBE NEWSWIRE) -- Auto loans, credit cards and personal loans all saw year-over-year growth in subprime originations this past quarter, a sign that lenders are returning to this space following several consecutive quarters of declining originations. The latest TransUnion (NYSE: TRU) Industry Insights Report includes insights into consumer credit trends around personal loans, auto loans, credit cards and mortgage loans through the third quarter of 2018.

TransUnion’s report found that origination growth in the subprime risk tier grew at a significant rate across auto, personal loans and credit cards following declines in 2017. Subprime originations in the personal loan category grew 28% between Q2 2017 and Q2 2018 (originations are viewed one quarter in arrears to account for reporting lag), compared to a yearly decline of 7.1% over the prior year. Auto showcased a similar trend, as independent lenders began issuing new loans to subprime consumers following industry pullback in 2016 and 2017. Subprime auto originations increased 7.3% year-over-year, after falling 7.8% year-over-year in Q2 2017.

“In 2016, the market experienced a pullback as lenders slowed or stalled subprime originations,” said Matt Komos, vice president of financial services and research and consulting at TransUnion. “The pendulum is starting to swing back, as we see lenders once again extend credit to subprime consumers.  In this environment, lenders are continuing to focus on risk tolerance and are taking this into consideration as some of them are shortening loan terms, managing interest rates and lowering loan amounts or credit lines.”

Credit cards, by far the most popular credit product, also reversed a declining originations trend with year-over-year growth observed for the first time since 2016. Growth of 3.6% was seen by subprime and positive growth was observed in the prime plus and super prime risk tiers. The current industry-wide treatment of subprime appears to be one in which lenders are providing more access to credit cards, though with smaller credit limits.

While total mortgage originations have continued to flatten, the subprime risk tier saw modest origination growth of 3.4% year-over-year, representing the largest volume of subprime loans originated in the second quarter post-recession. Mortgage delinquencies have consistently dropped every quarter since Q4 2009. In the subprime risk tier this improvement was particularly noticeable, dropping to 18.62% from 20.44% over the same period last year.

“As we look across the consumer wallet, we find several noteworthy trends. As lenders continue to adjust strategies and monitor for risk, delinquencies have flattened and remained low. Conversely, origination growth is taking place most noticeably in subprime, but is also taking place across most risk tiers. Overall, these insights point to a healthy market and should these trends continue, we can expect lenders to continue extending credit,” added Komos.

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Personal Loan Originations Continue Growth Trend, Rising 23% Year-Over-Year

Q3 2018 IIR Personal Loan Summary
At the end of the third quarter, personal loan balances reached a record-high $132.4 billion, an increase of 18.0% from the previous year, and $20 billion more than the end of Q3 2017. Personal loan originations grew at an annual rate of over 20% for the third consecutive quarter, growing 23% year-over-year in the last quarter. Subprime originations expanded at the fastest rate, increasing over 28% from the prior year. At the same time, the average new loan amount for subprime consumers continues to decrease, with more lenders offering smaller subprime installment loans as alternatives to payday loans. The 60+ day delinquency rate per borrower remains relatively low at 3.41%. Overall, this represents an increase of 28 bps over Q3 2017, 12 bps lower than Q3 2016 and 10 bps lower than Q3 2015.

Instant Analysis
“Personal loans continue to be one of the strongest sectors in consumer financial services. We are seeing two drivers of growth in personal lending. First, the favorable regulatory environment has fueled growth in non-prime lending, with FinTechs leading the way. Second, banks and credit unions continue to compete in the personal loan market and are offering larger loans and longer terms to prime and better consumers, whose overall balances are growing the quickest. As we look forward into 2019, low unemployment and rising wages are likely to support continued strength in unsecured lending.”

  • Jason Laky, senior vice president and consumer lending business leader at TransUnion

Q3 2018 Unsecured Personal Loan Trends


Personal Loan Metric
Q3 2018Q3 2017Q3 2016Q3 2015
Total Balances$132 billion$112 billion$100 billion$83 billion
Number of Unsecured Personal Loans20.3 million17.5 million16.2 million14.3 million
 Borrower-Level Delinquency Rate (60+ DPD)3.41%3.13%3.53%3.51%
Average Debt Per Borrower$8,338
Prior Quarter Originations*4.5 million3.6 million3.6 million3.6 million
Average Balance of New Unsecured Personal Loans*$6,253

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

Q3 2018 Unsecured Personal Loan Performance by Age

Generation60+ DPDAnnual Pct. ChangeAverage Loan Balances Per ConsumerAnnual Pct. Change
Gen Z (1995 – present)5.96%+5.3%$ 3,340+10.1%
Millennials (1980-1994)4.45%+5.2%$ 7,374+7.4%
Gen X (1965-1979)3.31%+7.1%$ 9,722+5.1%
Baby Boomers (1946-1964)2.46%+9.3%$ 8,530+2.9%
Silent (Until 1945)2.48%+11.7%$ 6,941+0.5%

Auto Loan Delinquencies Decline Even with Rise of Subprime Borrowers

Q3 2018 IIR Auto Loan Summary
After eight straight quarters of credit tightening, delinquencies showed improvement alongside an uptick in originations. The overall consumer-level delinquency rate declined, with subprime showing an improvement of 15 basis points from 6.97% in Q3 2017, to 6.82% in Q3 2018. With this stabilization, auto lenders are once again opening up to subprime borrowers. Subprime originations increased 7.3% year-over-year, after falling 7.8% year-over-year in Q2 2017. Overall, originations increased 3.1% year-over-year in Q2 2018, the second consecutive quarter of growth.

Instant Analysis
“The auto finance market continues to show signs of underlying health – delinquencies have flattened and it appears that lenders have responded by making credit more available to subprime borrowers again. This has helped drive modest year-over-year origination growth the past two quarters, following declining originations the previous six quarters. Delinquencies are flattening overall but there are headwinds to be wary of including increasing interest rates, rising oil prices, existing steel and aluminum tariffs increasing vehicle input costs as well as the threat of additional tariffs.”

  • Brian Landau, senior vice president and automotive business leader at TransUnion

Q3 2018 Auto Loan Trends


Auto Lending Metric
Q3 2018Q3 2017Q3 2016Q3 2015
Number of Auto Loans81.9 million78.6 million74.8 million69.8 million
 Borrower-Level Delinquency Rate (60+ DPD) 1.36%1.40%1.33%1.19%
Average Debt Per Borrower$18,835
Prior Quarter Originations*7.3 million7.1 million7.3 million7.2 million
Average Balance
of New Auto Loans*

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

Q3 2018 Auto Loan Performance by Age Group

Generation60+ DPDAnnual Pct. ChangeAverage Loan Balances Per ConsumerAnnual Pct. Change
Gen Z (1995 – present)1.77%-4.8%$ 14,301+3.7%
Millennials (1980-1994)1.78%-4.8%$ 18,024+2.6%
Gen X (1965-1979)1.50%-5.7%$ 21,220+2.0%
Baby Boomers (1946-1964)0.83%-3.5%$ 18,638+0.7%
Silent (Until 1945)0.77%+1.3%$ 14,538-0.5%

Credit Card Originations Grow to Highest Rate Since 2016

Q3 2018 IIR Credit Card Summary
New credit card accounts increased by 2.1% year-over-year, their highest growth rate since Q3 2016. Growth was primarily driven by super prime consumers with positive contributions by subprime and prime plus. This increase in originations has expanded the number of consumers with access to a credit card to a record 177.8 million. Balances continue to exhibit healthy growth, increasing 5.2% year-over-year. The average total credit line increased by 4.6% year-over-year in Q3 2018, up from 3.8% last quarter. Delinquencies of 90+DPD had a slight uptick and grew to 1.71% in Q3 2018. While trending up since 2015, delinquencies remain well below recession-era levels.

Instant Analysis

“Credit card originations reversed a declining trend for the second time in the last seven quarters. The origination mix reflected a straddle pattern across risk tiers– super prime and subprime risk segments showed growth while middle-tier prime and near prime segments experienced negative growth year-over-year. Despite the decline, the number of prime and near prime consumers with access to a credit card remained flat, and overall the number of consumers with a credit card reached a record number of 177.8 million.”

   - Paul Siegfried, senior vice president and credit card business leader at TransUnion.

Q3 2018 Credit Card Trends

Credit Card Lending MetricQ3 2018Q3 2017Q3 2016Q3 2015
Number of Credit Cards  425.1 million414.3 million398.5 million374.2 million
Borrower-Level Delinquency Rate (90+ DPD)1.71%1.68%1.53%1.44%
Average Debt Per Borrower$5,580
Prior Quarter Originations*15.8 million15.5 million17.6 million15.3 million
Average New Account Credit Lines*$5,390

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

Q3 2018 Credit Card Performance by Age Group

Generation90+ DPDAnnual Pct. ChangeAverage Loan Balances Per ConsumerAnnual Pct. Change
Gen Z (1995 – present)2.44%-4.3%$1,326+20.4%
Millennials (1980-1994)2.45%-0.8%$4,387+8.9%
Gen X (1965-1979)2.09%-0.5%$7,216+3.1%
Baby Boomers (1946-1964)1.13%+1.8%$6,342-0.1%
Silent (Until 1945)0.79%+6.8%$3,924-0.1%

Mortgage Balances Show Growth Trend; Delinquencies Continue to Decline

Q3 2018 IIR Mortgage Loan Summary
Mortgage originations decreased by 0.4% year-over-year, continuing a trend of declining originations since Q2 2017.  Consumer-level delinquencies continue to show consistent improvement, dropping every quarter since Q4 2009. Delinquencies declined to 1.7% in Q3 2018, compared to 1.9% at the same time last year. This was largely driven by drops in the near prime risk tier, where delinquencies dropped by 15% year-over-year, and the subprime risk tier which declined 9% year-over-year.  Of the largest MSAs, Seattle, New York, and Boston experienced the largest declines in delinquencies while Houston, Dallas, and St. Louis experienced the smallest declines in delinquencies. 

Instant Analysis
“The decline in mortgage originations is likely the impact we’re seeing from a combination of rising interest rates, steep home price appreciation, and limited starter home supply. On the refinance side, as interest rates rise, many consumers will no longer have an incentive to refinance their mortgages. On the purchase side, those rising interest rates coupled with rising home prices lead to a ‘double whammy’ for consumers interested in ‘moving up’ into a more expensive home, leading many to decide to stay in place. This in turn puts pressure on starter home supply. This trend will likely continue into the near future.”

   - Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q3 2018 Mortgage Loan Trends

Mortgage Lending MetricQ3 2018Q3 2017Q3 2016Q3 2015
Number of Mortgage Loans53.1 million52.7 million52.3 million52.9 million
Borrower-Level Delinquency Rate (60+ DPD)1.65%1.91%2.29%2.50%
Average Debt Per Borrower$205,782$199,417$193,489$189,428
Prior Quarter Originations*1.9 million1.9 million2.0 million1.9 million
Prior Quarter Average Balance
of New Mortgage Loans*
$ 230,076$224,502$230,120$221,753

*Note: Originations are viewed one quarter in arrears to account for reporting lag and ensure all accounts are included in the data

Q3 2018 Mortgage Loan Performance by Age

Generation60+ DPDAnnual Pct. ChangeAverage Loan Balances Per ConsumerAnnual Pct. Change
Gen Z (1995 – present)1.14%-3.4%$149,004+9.2%
Millennials (1980-1994)1.37%-11.0%$218,849+5.6%
Gen X (1965-1979)2.04%-14.3%$233,938+2.3%
Baby Boomers (1946-1964)1.43%-13.9%$184,003+1.8%
Silent (Until 1945)1.73%-6.5%$152,069+1.8%

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