TransUnion: Auto Delinquencies Tick Up as Originations Slow
The impact of wider access to credit on repayment rates could be causing auto finance sources to reevaluate their guidelines for subprime and nearprime borrowers.
CHICAGO — In the first quarter of 2017, outstanding balances for auto loans grew at a moderate pace and delinquencies ticked up as finance sources respond to poorer loan performance among subprime and nearprime borrowers, according to the latest "Industry Insights Report" from TransUnion.
The bureau’s senior vice president for financial services and automotive business leader, Brian Landau, said delinquency rates are approaching pre-recession levels but stressed that auto delinquencies never approached levels reached by credit card and mortgage customers.
“Regardless, with flatter sales volumes and higher delinquencies, we anticipate lenders will evaluate their credit policies for subprime and nearprime borrowers to calibrate for the uptick in delinquencies,” Landau said.
Among other findings, TransUnion reported that total auto loan balances grew to $1.12 trillion, about $7 billion higher than the first quarter a year ago. The average balance per customer grew by 1.8% to $18,386, and the delinquency rate jumped from 1.16% to 1.3% year over year. Originations fell by 0.2% overall, but subprime originations declined by a full 5%.
The report made clear that access to credit in other segments continues to open. TransUnion’s analysts found 171 million U.S. consumers held a credit card during the first quarter, the highest number since 2005. Credit card providers added 8.9% more subprime consumers compared to the same quarter a year ago, far outpacing the 2.6% increase among all other tiers. Total card balances grew by 7.4% to $693 billion.
“The card market went through a transformation after the recession as more lenders opened up access to subprime and near prime consumers,” said Paul Siegfried, TransUnion’s senior vice president and credit card business leader. “The competition for superprime consumers has become fierce, and we are seeing it manifest in higher total credit lines.”
On the mortgage side, delinquency rates declined by 11.9% from the first quarter of 2016, marking 15 straight quarters of positive growth. Remarkably, mortgage lenders have enjoyed improved performance even as home loan originations have climbed to levels not seen since 2012.
Joe Mellman, senior vice president and mortgage business leader for TransUnion, said those numbers may indicate the credit industry is “approaching a national floor” for delinquencies.
“But the significant drop observed this quarter puts us at a level we did not expect to reach until the third quarter,” Mellman added. “This is a positive sign for the industry, indicating we are recovering at a faster pace than expected. It may also suggest opportunities to cautiously and prudently extend access to low risk borrowers.”
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