Notable Growth for Subprime Originations, Equifax Reports
ATLANTA — A new report from Equifax revealed notable increases in subprime origination growth across all lending sectors, with subprime borrowers now making up more than 46 percent of the auto finance segment.
According to Equifax’s “National Consumer Credit Trends” report, new credit in 2011 ($782 billion) remained below pre-recession levels, but gained more than 10 percent over 2009 and 2010 levels ($695 and $709 billion, respectively).
Increases in credit limits also were seen in 2011, as total retail credit card limits increased 6 percent year over year from Dec. 2010 to Dec. 2011. Additionally, total bank credit card limits jumped 24 percent from Dec. 2010 to Dec. 2011. Consumer finance credit limits also saw a comparatively modest improvement of $1.2 billion from Dec. 2010 to Dec. 2011, according to F&I and Showroom magazine.
Total consumer debt in the U.S. currently stands at $11 trillion, a decrease of 11 percent from its peak of $12.4 trilling in the fourth quarter 2008. The drop is driven by a nearly 12 percent decrease in home financing balances, which fell from $9.8 trillion in 2008 to $8.7 trillion in February 2012. Non-mortgage and non-student consumer debt balances also fell sharply (22 percent) from the early 2008 peak of $2.05 trillion. After reaching a post-recession low of $1.60 trillion in May 2011, consumer debt balances have risen about 2 percent.
"The evidence of increased lending to subprime consumers demonstrates banks' ongoing efforts to grow lending by providing credit opportunities to more consumers," said Equifax Chief Economist Amy Crews Cutts. "Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement."
Other notable findings from Equifax' March Credit Trends Report include:
Auto Finance
Subprime borrowers are gaining share in new auto loan originations, especially in the auto finance segment where they now make up over 46 percent of the market. Prime borrowers account for a larger share (83 percent) among auto bank originations, but have also lost share over the past two years to subprime borrowers.
New auto finance loan amounts increased $11.6 billion from 2010 ($164.6 billion) to 2011 ($176.2 billion), hitting the highest originations level since 2007 ($221.1 billion).
Auto bank loan amounts were up 14 percent from 2010 ($162.1 billion) to 2011 ($187 billion), nearly reaching pre-recession levels.
The number of new auto loan originations increased over 2 percent from 2010 ($17.3 million) to 2011 ($19.6 million). The 2011 figure surpasses 2008 totals but remains 9 percent lower than the six-year high of $21.5 million reached in 2007.
Severe delinquency rates for auto finance loans are worse than for auto bank tradelines, however, both rates have fallen back to pre-recession levels.
In 2011, total new auto loan originations hit a 6-year high for the month of December, although total originations for the year were at a 4-year high.
Bank Credit Cards
Lending to subprime consumers showed a 41 percent increase from 2010 to 2011, as subprime borrowing hit a four-year high in Dec. 2011 with 1.1 million new bank credit cards issued.
New subprime card limits grew 55 percent from 2010 to 2011. At $12.5 billion in 2011, bankcard limits are at their highest level since 2008 ($27.4 billion).
Bank credit card growth continues, but is still well below pre-recession levels. In 2011, 39.9 million bankcards were opened, an 18 percent increase from 2010 and the highest total since 2008.
The increase in total bank credit card originations was accompanied by a 31 percent increase in total credit limits from 2010 to 2011. Last year marked the first time in more than four years that credit lines increased, reaching $163 billion.
Consumer Finance
New consumer finance loans originated in 2011 (20.2 million) were up more than 4 percent from 2010 (19.4 million), the highest point since 2008 (24.8 million).
Delinquency rates are on the decline, dropping to 7 percent in February 2012, the lowest level since July 2007.
From 2007 to 2010, consumer finance loan originations were falling, but the trend reversed in 2011 with $1.2 billion of new loan amounts added.
New consumer finance originations for the month of December reached $5 billion in 2011; the last time December originations were that high was in 2008 ($5.1 billion).
Consumer finance loans have typically served high-risk consumers, but in February 2011, low-risk borrowers became dominant in the segment. As of February 2012, a little more than 33 percent of consumer finance loans (by dollars) were to high-risk borrowers, while 39 percent were to low-risk borrowers.
Retail Credit Card
In early 2009, the share of retail card balances held by low-risk borrowers started increasing markedly. Today, low-risk borrowers hold just less than 42 percent of retail card balances, followed by high-risk borrowers who now make up nearly 26 percent of balances outstanding.
From 2010 to 2011, there was a 4.7 percentage point increase in retail card originations to subprime borrowers, making up 31 percent of 2011 retail credit card originations.
Retail credit card limits grew almost 6 percent in 2011, totaling $60 billion for newly originated cards.
New retail card tradelines in December 2011 showed a 4 percent increase over the same month a year ago, adding 4.2 million new accounts.
The decline in total retail card limits appears to be nearing a bottom as delinquency rates and write-offs show continued declines.
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