Financial Crisis – 10 Years Later: Consumer Credit Market on an Upward Curve

Latest TransUnion Industry Insights Report highlights differences between the two periods

CHICAGO, Aug. 22, 2018 (GLOBE NEWSWIRE) -- Ten years after the biggest financial crisis to hit the United States since the Great Depression, much has changed in the consumer credit marketplace. Serious delinquency rates have recovered since that period, and the credit quality of consumers has broadly improved. Yet the crisis has had a profound effect on consumer access to credit and the relationship they have with it.

TransUnion’s (NYSE: TRU) just-released Q2 2018 Industry Insights Report allows for comparisons between Americans’ credit preferences today versus 2008, specifically in the auto finance, credit card, mortgage and unsecured personal loan markets.

“From a credit perspective, the financial crisis of 2008 was—and hopefully will remain—one of the most trying times in Americans’ lives,” said Matt Komos, vice president of research and consulting for TransUnion’s financial services business unit. “Unemployment rates jumped, housing values sunk to levels that caused hundreds of thousands of homeowners to go ‘underwater’ on their mortgages, and the ability to gain access to credit became difficult—or the cost of credit became too expensive—for millions of consumers. As a result, massive shifts in how consumers prioritized and paid their debts took place. Ten years later, we have some historical perspective on the repercussions from that period, and fortunately for the overall economy, consumers are generally in a much better place today.”

Evidence of this can be found in the distribution of credit scores. In Q2 2008, approximately 52% of the scorable population had VantageScore 3.0 credit risk scores of 661 and above. The percentage of consumers with such scores jumped to 60% in Q2 2018. VantageScore 3.0 uses a 300-850 range, and consumers with scores of 661 or higher are viewed as prime or above by most lenders. These consumers often secure the best rates on new loans.

10 Years Later: Serious Delinquency Rates Under Control
Nowhere are the changes in consumer and lender behavior more evident than in the mortgage industry. The proliferation of subprime mortgage lending in the mid-2000s, among other market factors, led to massive increases in the percentage of borrowers 60+ days past due. The metric, which traditionally had hovered around 2%, spiked to nearly 4% by Q2 2008 and peaked at over 7% in Q1 2010. Following the crisis, the tightening of lending standards has helped push the delinquency rate to much-improved levels. As of Q2 2018, the serious mortgage delinquency rate stands at 1.67%.

Now & Then: Changes in Consumer-Level Delinquency Rates Since the Financial Crisis
Year/Credit ProductMortgage LoansAuto LoansCredit CardsUnsecured
Personal Loans
Q2 20083.87%1.26%2.71%4.54%
Peak Level7.21%1.64%3.19%5.05%
Q2 20181.67%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). 

In reflecting upon delinquency rates in other sectors, serious delinquencies for auto loans and unsecured personal loans rose slightly during the financial crisis, though these increases were modest and short-lived. Credit card delinquencies grew during the crisis as well, but have been cut in half from their peak in 2009—in fact, like mortgage, the percentage of borrowers carrying serious card delinquencies is actually better now than the performance seen in the years leading up to the recession.

10 Years Later: Shifts in Credit Product Preferences
The volume of accounts for the various credit products has also experienced major shifts during the course of the last 10 years. Credit cards remain the most ubiquitous credit vehicle, and while originations were noticeably lower soon after the financial crisis, they have recovered in recent years to around 2008 levels as lenders have provided more access to credit over this time period. Mortgage originations dropped dramatically during the last decade, whereas both auto loans and unsecured personal loans have grown significantly. A combination of lenders expanding access to credit following initial tightening after the crisis, as well as changes in technology driving continued innovation, have provided consumers with more options for their borrowing needs. 

Originations* Snapshot – Comparing ’08 to ‘18
Credit Product/TimeframeQ1 2008Lowest levelQ1 2018
Auto Loans5,176,5673,502,4806,789,229
Credit Cards14,294,8547,338,47914,505,473
Mortgage Loans2,194,3371,027,9961,480,816
Unsecured Personal Loans2,143,2501,525,8973,467,452
*Note: Originations are viewed one quarter in arrears to account for reporting lag and ensure all accounts are included in the data. Hence, Q1 2018 is the latest data. Lowest origination levels occurred in the following timeframes: Mortgage (Q1 2014); Auto (Q4 2008); Credit Card (Q1 2010); Personal Loans (Q1 2010).

“While we have seen a rebound in originations across all products since hitting their lowest respective levels from the crisis, there has been a shift in lender strategy, most noticeably in the mortgage market,” said Komos. “In mortgage, originations have rebounded from a low observed in Q1 2014, but are still down relative to 2008. The downward shift was driven by a large reduction in subprime lending due to lender contraction immediately following the crisis. In fact, subprime share of mortgage originations has dropped by almost 50% since 2008. There has also been a shift in the types of products available to consumers relative to before the financial crisis, which may have also created less access for risky populations of consumers in mortgage.”

“Conversely, the growth that we are more recently seeing in mortgages is coming from the lowest-risk consumers. There are more super prime accounts in 2018 than there were in 2008, though account volume has reduced for every other risk tier. Most recently, however, we have started to observe lenders providing greater credit access across the full risk spectrum, compared to the period 2010-2015, as the economy and housing market have recovered,” continued Komos.

The shifts observed in other credit products follow a similar trend as mortgage originations. Although the conversation in the auto lending arena has focused on subprime gains in recent years, in fact the years-long rise in auto loan originations has been driven even more so by increases in loans to prime plus and super prime consumers. TransUnion found that, from an account perspective, subprime share has actually dropped by 25% since 2008.

The increase in personal loan originations has been primarily driven by the growth in FinTechs. Origination volumes are up across risk tiers, but have increased most noticeably for prime and prime plus consumers. As a result, prime and prime plus balance and account growth has been extensive. “Together, consumers in these two risk tiers have taken a lot of share from other risk tiers in terms of both accounts and balances. More specifically, 41% of personal loan balances sat in these tiers in 2008, while 53% now sit with these tiers today,” added Komos.

10 Years Later: Consumers Growing Auto and Personal Loan Balances
Balance growth in the last 10 years has mostly been strongest in the auto loan and unsecured personal loan markets, with 56% and 73% growth rates, respectively. However, all products have seen significant balance growth from their lowest observed values after the recession.

Total Balances Mostly Rising
Credit Product/TimeframeQ2 2008Lowest levelQ2 2018
Auto Loans$773,285,683,865$668,663,129,655$1,205,427,457,791
Credit Cards$717,318,415,932$573,260,358,655$755,181,403,484
Mortgage Loans$9,372,224,050,745$7,874,673,841,378$9,032,842,628,021
Unsecured Personal Loans$72,438,470,558$45,512,235,808$125,365,252,113
*Note: Lowest total balance levels occurred in the following timeframes: Mortgage (Q2 2013); Auto (Q1 2010); Credit Card (Q1 2013); Personal Loans (Q1 2012).

“It’s clear that significant shifts have occurred in consumer preferences for credit products during the last decade, and though initially constrained after the financial crisis, lenders have made access to credit more broadly available to consumers in recent years. And, consumers are clearly using that credit at a comparable or higher magnitude relative to the crisis. Most importantly, we have observed relatively low delinquency rates the last several years as consumers have built balances back and have continued to access credit in a responsible way. A combination of low delinquencies and continued, measured balance growth is the best recipe for a strong consumer credit market,” said Komos.

Please visit TransUnion’s Industry Insights Report website for more charts and details about the Q2 2018 Industry Insights Report or to register for TransUnion's Q2 2018 Industry Insights Webinar. Consumers interested in learning more about their credit score and credit reports can click here.

Mortgage Delinquency Rates Down; Origination Levels Remain Low

Q2 2018 IIR Mortgage Loan Summary
The serious mortgage delinquency rate (60+ DPD) declined to 1.67% in Q2 2018, the lowest level observed since the Great Recession. The delinquency rate dropped 25 basis points from one year earlier, when it stood at 1.92%. While delinquency rates are declining, TransUnion noted continued slowing in the origination market partly due to rising interest rates. In Q1 2018, mortgage originations decreased by 0.6% from the previous year while the 30-year mortgage interest rate rose 14% in that same timeframe. Though, non-prime origination market share grew to 16.3% from the prior year. Despite this growth, non-prime originations are well below levels observed during the mortgage crisis.

Instant Analysis
“We continue to see declines in the mortgage delinquency rate, largely a result of the better credit quality of recent home buyers and a housing market which has seen sustained price appreciation. Despite low delinquency rates, the number of mortgage loans has hovered around 53 million in recent years. In contrast, at the beginning of the decade more than 60 million mortgage loans were on the books. This shift is likely due to a combination of historically tight underwriting standards coupled with rising home prices putting pressure on home affordability, particularly at the entry-home level. In fact, home ownership rates continue to remain far below recent historical averages. The home ownership rate reached approximately 70% at the beginning of the decade, but has since declined, maintaining 64.2% since Q3 2017. Those consumers making home purchases tend to be taking on larger loans, as seen by the continued rise in average debt per mortgage borrower.”

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

Q2 2018 Mortgage Loan Trends 
 Mortgage Lending MetricQ2 2018Q2 2017Q2 2016Q2 2015
 Number of Mortgage Loans 53.0 million 53.0 million52.7 million53.2 million
 Borrower-Level Delinquency Rate (60+ DPD)1.67% 1.92%2.30%2.82%
Average Debt Per Borrower$203,887$198,045$192,749$188,504
Prior Quarter Originations*1.5 million1.5 million1.5 million1.5 million
Prior Quarter Average Balance of New Mortgage Loans*$228,162$219,743$223,262$222,453
*Note: Originations are viewed one quarter in arrears to account for reporting lag and ensure all accounts are included in the data

Q2 2018 Mortgage Loan Performance by Age
Generation60+ DPDAnnual Pct.
Average Loan
Balances Per
Annual Pct.
Gen Z (1995 – present)1.11%-4.3%$145,766+8.7%
Millennials (1980-1994)1.30%-12.8%$215,128+5.5%
Gen X (1965-1979)2.05%-14.2%$232,325+2.1%
Baby Boomers (1946-1964)1.47%-13.5%$183,209+1.5%
Silent (Until 1945)1.74%-7.0%$151,351+1.3%

Auto Originations Reverse Declining Trend; Delinquencies Remain Stable

Q2 2018 IIR Auto Loan Summary
TransUnion’s Industry Insights Report found that auto originations growth turned positive in Q1 2018, increasing 0.9% to 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 beginning in Q3 2016. The growth was driven by a 3.0% yearly increase in prime plus and super prime originations. With the exception of subprime, which experienced an annual decline of 3.3%, all other risk tiers experienced growth as well. Tighter underwriting over the past few quarters appears to be positively impacting the 60+ DPD delinquency rate. After growing from 1.11% in Q2 2016 to 1.23% in Q2 2017, the trend has remained flat, landing at 1.22% in Q2 2018. This marks the third quarter in a row in which year-over-year delinquency rates have remained stable.

Instant Analysis
“We expect this shift in origination mix from lower credit tier consumers to higher credit tier consumers to continue through the end of the year as lenders look to reduce portfolio risk. This will likely result in continued stabilization in the delinquency rate. We expect to report higher Q2 auto loan originations next quarter, as new car sales continued an upward trend through the second quarter. We also anticipate that an increase in used car purchases, spurred by the shift toward lower-risk auto borrowers, may dampen new car sales through the rest of 2018. The recently announced import tariffs on steel and aluminum are something to monitor, as they may have a minor impact on vehicle prices and consequently, on originations. However, we do not expect this, or any other non-credit factors, to have an outsized impact on the industry.”

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

Q2 2018 Auto Loan Trends 
 Auto Lending MetricQ2 2018Q2 2017Q2 2016Q2 2015
 Number of Auto Loans80.9 million77.4 million73.3 million67.9 million
 Borrower-Level Delinquency Rate (60+ DPD)1.22%1.23%1.11%1.00%
 Average Debt Per Borrower$18,700$18,486$18,177$17,699
Prior Quarter Originations*6.8 million6.7 million6.9 million6.5 million
Average Balance of New Auto Loans*$20,901$20,415$20,013$19,695
*Note: Originations are viewed one quarter in arrears to account for reporting lag and ensure all accounts are included in the data.

Q2 2018 Auto Loan Performance by Age Group
Generation60+ DPDAnnual Pct.
Average Loan
Balances Per
Annual Pct.
Gen Z (1995 – present)1.59%-1.2%$14,107+ 3.1%
Millennials (1980-1994)1.57%-1.9%$17,853+ 2.3%
Gen X (1965-1979)1.37%-2.8%$21,031+ 1.8%
Baby Boomers (1946-1964)0.77%-1.3%$18,536+ 0.5%
Silent (Until 1945)0.70%+2.9%$14,514- 1.8%

More Consumers Than Ever Gain Access to a Credit Card

Q2 2018 IIR Credit Card Summary
TransUnion found that the number of consumers with access to card credit has grown to an all-time high of 176 million in Q2 2018, an increase of 2.2% from the previous year. Consumers continued to drive credit card balances up 5.8% in Q2 (compared to 7.8% in Q2 2017). This growth was seen across all risk tiers, with super prime borrowers experiencing the highest growth rate at 8.4%. Overall, the average balance per borrower grew 2.2% year-over-year in Q2, primarily driven by subprime growth. Bankcard originations in Q1 2018 decreased 3.2% year-over-year due to a decline in originations in all tiers near-prime and above, with associated credit lines shrinking 2.9% for bankcards. Subprime originations grew 4% year-over-year, but lenders have reduced credit lines on these accounts by 10%.

Instant Analysis
“Balance growth continues to remain healthy, and we continue to see an expected increase in consumer delinquency. While we are taking note of the rising delinquencies, they still remain below recession levels. The origination decline was led by near-prime and above credit tiers, reversing the growth in the prior quarter and shifting back to the declining trend seen in the previous five quarters. Issuers continue to optimize portfolio risk by increasing the number of consumers accessing credit cards, and growing balances by extending lines on existing accounts. Despite originations decreasing overall, subprime bankcard originations grew for the first time in five quarters. However, this expansion has been deliberate as lenders have reduced credit lines on subprime accounts.”

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

Q2 2018 Credit Card Trends 
 Credit Card Lending MetricQ2 2018Q2 2017Q2 2016Q2 2015
Number of Credit Cards 420.0 million409.8 million391.0 million369.8 million
 Borrower-Level Delinquency Rate (90+ DPD)1.53%1.46%1.29%1.20%
Average Debt Per Borrower$5,543$5,422$5,247$5,197
Prior Quarter Originations*14.5 million15.0 million15.3 million13.5 million
Average New Account Credit Lines*$ 5,649$5,817$5,466$5,102
*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Q2 2018 Credit Card Performance by Age Group
Generation90+ DPDAnnual Pct.
Average Loan
Balances Per
Annual Pct.
Gen Z (1995 – present)2.13%-4.9%$1,262+21.9%
Millennials (1980-1994)2.03%+1.5%$4,238+9.5%
Gen X (1965-1979)1.90%+3.3%$7,117+3.8%
Baby Boomers (1946-1964)1.10%+6.8%$6,363+0.4%
Silent (Until 1945)0.79%+12.9%$3,962+0.0%

Personal Loan Balances Skyrocket to All-Time High of $125 Billion

Q2 2018 IIR Personal Loan Summary
The popularity of personal loans continues to increase as outstanding 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. These increases are being driven by origination growth across all risk tiers, with the highest growth coming from below-prime risk tiers. Despite the immense growth in this sector, the 60+ DPD 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 originations, specifically to below-prime consumers. 

Instant Analysis
“The strength of FinTechs, as well as the renewed focus of banks and credit unions on the personal loan market, will keep personal loan balances at a healthy level. More consumers than ever are seeing value in a personal loan, whether for debt consolidation or home improvement finance. In recent quarters, we have seen an increased pace of new account originations from the below-prime risk tiers, as unemployment remains low and the regulatory environment is more favorable to short-term lenders.”

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

Q2 2018 Unsecured Personal Loan Trends 
 Personal Loan MetricQ2 2018Q2 2017Q2 2016Q2 2015
Total Balances$125 billion$107 billion$96 billion$76 billion
Number of Unsecured Personal Loans19.5 million17.3 million 15.5 million13.4 million
 Borrower-Level Delinquency Rate (60+ DPD)3.21%3.02%3.30%3.32%
Average Debt Per Borrower$8,198$7,781$7,745$7,102
Prior Quarter Originations*3.5 million2.8 million3.0 million2.6 million
Average Balance of New Unsecured Personal Loans*$6,443$6,430$6,187$5,626
*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Q2 2018 Unsecured Personal Loan Performance by Age
Generation60+ DPDAnnual Pct.
Average Loan
Balances Per
Annual Pct.
Gen Z (1995 – present)5.61%+6.9%$ 3,258+13.6%
Millennials (1980-1994)4.06%+0.7%$ 7,195+9.3%
Gen X (1965-1979)3.16%+3.6%$ 9,522+6.5%
Baby Boomers (1946-1964)2.42%+8.5%$ 8,411+4.1%
Silent (Until 1945)2.45%+12.4%$ 6,885+1.0%

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