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TransUnion: Subprime borrowing, rate hikes to boost 2017 delinquencies

TransUnion: Subprime borrowing, rate hikes to boost 2017 delinquencies

2017 TransUnion credit performance forecast finds delinquency levels still far below recession levels

Anticipated increases in interest rates and growth in the number of subprime borrowers in the consumer lending market will spur delinquency rates in 2017 for auto loans and credit cards, according to TransUnion’s 2017 consumer credit market forecast. The study also found that serious mortgage loan delinquency rates are expected to drop, while unsecured consumer loan delinquencies are expected to see only a minimal increase this year.

“The consumer credit markets have been functioning extremely well the last few years, but an increase in subprime lending has begun to impact delinquency levels for some industries, specifically the auto finance and credit card markets,” said Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit.

“On the credit card front, we have seen the percent of subprime accounts reach their highest level since the end of 2010; for auto finance, this figure is now at its highest point since the conclusion of 2013,” Verma said. “Our forecast also takes into account an expected 50-basis point aggregate increase in the prime interest rate beginning this December and continuing through the end of next year. The combination of these elements is a key driver of the expected delinquency rate increases.” 

Serious Borrower-Level Delinquency Rates for Key Credit Products*

Credit Product

Q4 2012

Q4 2013

Q4 2014

Q4 2015

Q4 2016**

Q4 2017**

PCT Change in Last 5 Years
 (2012-2017)

Auto Loans 

1.15%

1.23%

1.19%

1.27%

1.36% 

1.40% 

+21.3% 

Credit Cards 

1.75%

1.60%

1.48%

1.59%

1.71% 

1.82% 

+3.7% 

Mortgage Loans

5.38%

4.31%

3.40%

2.46%

2.21%

2.11%

(-60.8%)

Unsecured Personal Loans

3.93%

4.01%

3.73%

3.62%

3.66%

3.72%

(-5.4%)

*Serious mortgage, auto loan, and personal loan delinquencies are defined here as those with payments 60 or more days past due. Serious credit card delinquencies are defined as those with payments 90 or more days past due. **Projections. 

Although delinquency rates are expected to increase for most credit products, mortgage loans will continue a downward trend that has seen delinquency rates drop every quarter since Q3 2013 and declines in delinquency rates for 23 of the last 26 quarters since peaking at 7.21% in Q1 2010.

“The mortgage market has improved dramatically, to a point where it has normalized on a delinquency basis,” Verma said. From an overall consumer credit standpoint, the mortgage marketplace also stands out from other loan types, with prime-and-above borrowers representing a larger percentage of total accounts. This improved risk distribution, coupled with rising home values, has led to a significant decline in mortgage delinquencies.”

Delinquencies expected to remain below recession levels 

TransUnion stressed that the delinquency levels projected for all credit products in 2017, even those that are increasing, will still remain well below the levels observed at the last recession. 

“These projected increases in delinquency are not surprising, nor are they yet a cause for concern,” said Verma. “Lenders are adjusting their underwriting strategies to maintain a good balance between expected losses, consumer credit access, customer utility, and investor returns—and in the end, that balance is a benefit to all parties.”

Comparing Borrower-Level Delinquency Rates: Recession Times vs. Forecasted 2017 Delinquencies

Credit Product

Q4 2009

Q4 2017*

Auto Loans

1.59%

1.40%

Credit Cards

2.97%

1.82%

Mortgage Loans

7.16%

2.11%

Unsecured Personal Loans

4.98%

3.72%

*Projections.

Additional forecast details, including breakout analyses of the credit-card, mortgage, auto-loan, and personal-loan segments, can be found at the TransUnion website.

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