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Author Topic: Reason Behind Declining Loan Performance

T
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Reason Behind Declining Loan Performance
OP: June 16, 2017, 11:00:00 PM
http://www.businessinsider.com/prosper-and-lending-club-dont-always-verify-borrower-income-and-employment-2017-6

https://www.bloomberg.com/news/articles/2017-06-14/biggest-online-lenders-don-t-always-check-key-borrower-details

http://www.businessinsider.com/credit-card-defaults-have-spiked-as-lending-standards-fall-2017-6

"In the past two fiscal quarters, banks reported a steep rise in credit-card charge-offs — debt that companies can't collect from their customers — according to a report from Moody's....The sharp increase, the largest since 2009, is especially unusual given how strong the US employment market has been, Moody's noted. It suggests that American consumers haven't fallen on hard times so much as banks have started to loosen their standards and issue credit more aggressively."
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Reason Behind Declining Loan Performance
#1: June 16, 2017, 11:00:00 PM
Yes, after the "great tightening" of 2008, we've had historically low defaults in the macro environment (due to tightened underwriting) that have only recently begun to tick back up to historically "normal" levels.  As we approach a renormalization of macro chargeoffs, so, too, will rates need to rise to remain commensurate with the levels of risk that credit expansion will bring.  Credit expansion is ahead of rates - for now - though the Fed, which is now getting criticized in the popular press, is acting (appropriately) to make sure rates rise commensurate.

WRT unsecured consumer lending, specifically, the only thing on my near-term risk horizon is the upcoming changes to credit reporting and, thereby, credit scoring (which is dependent upon the data included in credit reports).  Many civil judgments, tax liens, etc, will soon vanish - resulting in a population of "newly credit score rich" consumers... and we're coming up on 10-year 'jubilee' for bankrupts in 2007-8, as well.

I suspect that a lot of those "newly credit score rich" will be going after housing, not necessarily unsecured credit, for their first move... and that by the time they get around to realizing they've overextended, there'll be enough debt data in their CR to insulate unsecured.
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r
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Reason Behind Declining Loan Performance
#2: June 16, 2017, 11:00:00 PM
I don't think it explains the weakness in consumer.  I haven't seen anything insight on what the cause actually is
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L
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Reason Behind Declining Loan Performance
#3: June 16, 2017, 11:00:00 PM
It seems to me that recent yearly health insurance increases must hurt a lot of people.  Eventually things happen, more debt use is needed, and the paycheck doesn't stretch to cover normal living expenses.  When gasoline goes up at times too, as well as food, etc., it makes sense to me that more defaults happen.  Rent and mortgage comes first, at least before unsecured credit debt.
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S
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Reason Behind Declining Loan Performance
#5: June 17, 2017, 11:00:00 PM
I think the culprit is three-fold: 1) Rising housing costs (mortgages and rent) 2) Rising health care costs and 3) Student debt.
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Reason Behind Declining Loan Performance
#9: June 17, 2017, 11:00:00 PM
IMO at macro level we will not see consumer weakness unless the new credit growth slows down. Simply the growth in new credit most probably outpacing rise in delinquencies/defaults. At micro level, signs of consumer distress is everywhere. Pick any securitization, most seems to doing not as well as expected. Recently I was surprised to see even Harley Davidson securitization doing worse.
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