Consumer credit markets continued their strong performance in the third quarter, according to TransUnion's Q3 2015 Industry Insights Report. Mortgage delinquency rates maintained their trend of double-digit annual declines, while both auto loans and credit cards showed signs of strength through stable default rates and balance growth.
On the debt front, aggregate revolving credit balances increased by $13.5 billion between Q3 2014 and Q3 2015. Non-revolving debt also rose by $249.5 billion over the same period.
At the consumer level, however, average revolving balances decreased by 3.9% in the last year to $10,931 in Q3 2015. The decline at the consumer level was driven in part by increased access to credit by non-prime consumers, who generally have lower credit limits. Non-revolving debt per consumer also decreased by 0.3% over the year, ending at an average of $113,973 per consumer in Q3 2015. "Consumer credit performance continued to be healthy in the third quarter of 2015," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "Delinquencies for mortgages continued to drop, while both auto and credit card default rates remained near all-time lows. Overall balance growth reflects consumer optimism and increased access to credit. Lenders are offering credit to consumers across the risk spectrum, and consumers are using that credit responsibly. We are poised to continue this positive momentum into the holiday season.” TransUnion Insights: Inside the Credit Card Market The report found that credit card originations, viewed one quarter in arrears (to ensure all accounts are reported and included), reached the highest level since Q3 2009. Total originations reached 15.2 million, a 12.2% increase from 13.5 million in Q2 2015. "Credit card originations are increasing at a faster pace in the last year, indicating that consumers have an appetite for credit," said Paul Siegfried, senior vice president and credit card business leader for TransUnion. The credit card delinquency rate (the rate of borrowers 90 days or more delinquent on their general purpose credit cards) rose nearly 7% from 1.34% to 1.43% in Q3 2015. The delinquency rate, though, remains in a similar range to what has been observed the last few years and is nearly half of the Q3 2009 reading of 2.76%.
- Total bankcard balances in Q3 2015 grew 4.7%, reaching $637 billion. Balances were nearly $30 billion lower in Q3 2014, when the total balance was $608 million. On a quarterly basis, total balances grew 2.4%, up from $622 million in the prior quarter.
"The growth in total bankcard balances, combined with stable delinquency levels, indicates consumers are comfortable with and willing to use their credit cards," said Siegfried. "The current credit card environment also suggests a stabilization in the supply and demand equilibrium for credit.”
The number of consumers with credit cards reached 130.8 million in Q3 2015, a 4.3% increase from 125.4 million consumers in the prior year same quarter.
- Consumers in the non-prime (those consumers with a VantageScore® 3.0 credit score of 660 or below) risk tier contributed to the growth in credit card access, with 33 million more consumers gaining access to credit in Q3 2015. Non-prime consumers' access to credit cards grew in the last year by 25.3%.
"Card issuers are seeking opportunities to lend to non-prime consumers, and are slowly opening up credit to these consumers," said Siegfried. "Despite non-prime consumers increasingly gaining access to credit cards, balance delinquency rates remain steady.”
While the average new credit line grew for all risk tiers in Q2 2015 (also viewed one quarter in arrears to ensure all accounts are reported and included in the data), subprime consumers experienced an increase in average new credit line for the first time since Q2 2014. New subprime credit lines increased 0.7% to $995 in Q2 2015.
- New super prime credit lines experienced the largest growth in the second quarter at 8.4%. The average new credit line for super prime consumers reached $10,576 in Q2 2015, up from $9,759 in Q2 2014. On a quarterly basis, the average new credit line for these consumers remained steady from $10,566 in Q1 2015.
TransUnion Insights: Inside the Auto Loan Market The Industry Insights Report found that auto balances surpassed $1 trillion in Q3 2015, an 11.1% increase from Q3 2014. In the past year, auto loan balances have increased $101 billion to $1.008 trillion in Q3 2015.
Auto loan balances for the subprime risk tier (those consumers with a VantageScore® 3.0 credit score lower than 601) remain the smallest segment with 15.3%, or $154 billion, of the total balance. However, this is the highest share of auto balance observed for the subprime risk tier since Q1 2011. Consumers in the prime or better risk tiers (those with a VantageScore® 3.0 credit score higher than 661) represent $670 billion of the $1 trillion in balances.
- The average balance across all auto loan accounts was $14,515 in Q3 2015, a 2.7% increase year-over-year, and the slowest pace of average balance growth since Q4 2011. The average subprime auto loan balance increased 4.2% from $13,328 in Q3 2014 to $13,890 in Q3 2015, the lowest growth rate since early 2012.
"As total auto loan balance rises, we're seeing controlled and deliberate growth by lenders," said Jason Laky, senior vice president and automotive business leader for TransUnion. "Consumers continue to feel confident in their employment or job prospects, and their appetite for new auto loans reflects this confidence.”
- As balances increase, auto loan delinquencies (the rate of borrowers 60 days or more delinquent on their auto loans) continue to remain flat -- remaining at 1.16% in both Q3 2014 and Q3 2015.
- Nearly 75 million consumers have an open auto account, an increase of 5 million since Q3 2014 (69.5 million). The number of consumers with access to an auto loan grew 2 million quarter over quarter from 72.5 million in Q2 2015.
"More consumers have access to auto loans, yet delinquencies remain low as they continue to responsibly manage their payments," said Laky. "Consumers are taking on more and bigger auto loans in today's low-rate environment, but we see no cause for concern as delinquencies remain steady.”
Viewed one quarter in arrears (to ensure all accounts are reported and included in the data), new auto loan originations exceeded 7 million for the first time in Q2 2015. Up 13.5% from Q1 2015 and 6.4% from Q2 2014, originations reached 7.3 million this past quarter.
- Along with origination growth, the average new auto loan balance grew to $20,016 in Q2 2015. The average balance increased $567 from the average balance in Q2 2014 of $19,449. New subprime auto loan balances increased 3.7% year-over-year from $16,781 in Q2 2014 to $17,357 in Q2 2015.
TransUnion Insights: Inside the Mortgage Market The latest Industry Insights Report found that the mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgages) declined nearly 30% from 3.36% in Q3 2014 to 2.40% in Q3 2015. The delinquency rate has now declined 65% from its Q1 2010 peak of 6.94%.
All age groups dropped in delinquency roughly equally, in the 27% to 30% range. Both millennials and the 60+ age groups are the least risky consumer groups, with delinquency rates of 1.62% and 1.77%, respectively.
Every state across the board experienced yearly declines in their mortgage delinquency rate. Of note, Florida's mortgage delinquency rate dropped the most of any state in the last year from 6.42% in Q3 2014 to 3.75% in Q3 2015.
- The top 10 MSAs by population all showed a dramatic decrease in year-over-year delinquency rates, averaging a 33% drop, with Miami and San Francisco declining more than 40%.
"The decline in serious mortgage delinquencies is continuing and even ramping up, with steadily increasing absolute drops over the last year," said Joe Mellman, vice president and mortgage business leader for TransUnion. "We believe this is due to a combination of factors, including strong performance by recent vintage mortgage loans, improving home prices, and the continued funneling of delinquent accounts through the foreclosure process."
Viewed one quarter in arrears (to ensure all accounts are reported and included in the data), TransUnion found that mortgage originations (by loan count) in Q2 2015 maintained last quarter's robust growth. At 2.01 million, mortgage originations have increased nearly 40% in the last year. As a comparison point, since a post financial crisis origination low in Q2 2011, the nation has averaged a quarterly origination rate of 1.80 million.
- The trend of super prime and prime plus consumers leading the pack in mortgage origination growth continues, with 50% and 40% year-over-year increases observed. However, prime, near prime and subprime populations also showed meaningful growth at approximately 30% each.
"This is now the third straight quarter where we've not only seen year-over-year mortgage origination growth, but also significant increases in the higher risk populations of near prime and subprime -- hinting at a loosening of credit and/or a change in the mix of borrowers seeking mortgages," said Mellman. The results, along with the findings discussed below, were reported in the latest TransUnion Industry Insights Report, a quarterly overview summarizing data, trends and perspectives on the U.S. consumer lending industry. The report is based on anonymized credit data from virtually every credit-active consumer in the U.S.