Weekly Industry Update: Credit Trend Through Delinquency Rates
By Vy Phan
April 24, 2017
- Delinquencies on credit cards reached multi-decade all-time lows in early 2016.
- Credit card delinquencies are in early stages of reverting to historical levels, whereas the Loan Performance Monitor indicates that the unsecured personal installment loans have started a pattern of higher losses in successive vintages starting in 2015.
- Through-the-cycle losses on credit card products are lower than losses on installment lending products.
- Peak delinquencies in credit card ABS are ~8% in a stress scenario. By contrast, three-year unsecured personal loans (such as loans in the seminal CHAI shelf) are typically associated with a ~12% cumulative loss estimate (under a benign base case).
- Note: We should expect higher losses on installment loans as non-banks offer access to credit to borrower segments outside of a traditional bank’s higher credit score underwriting box.
- Historical credit card performance data is a poor proxy for measuring installment loan performance.
- Installment loans are lower in the consumer payment priority stack.
- Installment loan losses lead performance in other asset classes such as credit card.
- Credit card account management strategies (e.g., re-pricing of delinquent loans, credit line decrease tactics, etc.) are powerful levers for managing risk as compared to installment loans where issuers can only set terms at time of approval.
- Deeper borrower relationship engagement (as measured by breadth of product penetration) reduces borrower’s credit risk all things being equal.
- Ram will speak on a panel of technological leaders at YJP's Venture Capital & Technology Forum on April 26 at CohnReznick in New York at 6PM
- What’s Next in Fintech Lending? - PeerIQ Breakfast and Panel Discussion
- PeerIQ will host a panel on May 9th at 9AM featuring a roundtable discussion led by Peter Rudegair of WSJ and joined by thought leaders including: Jason Jones, Co-Founder of LendIt, Zhengyuan Lu, principal at Victory Park Capital, Greg Nowak, partner at Pepper Hamilton and Ram Ahluwalia, CEO of PeerIQ.
- Space is limited to 20 slots, so please RSVP to confirm attendance.
- FRALLC’s Bank/Alternative Lender Strategic Partnership Summit on May 10-11 in New York. Ram will speak on the “Tapping Secondary Markets: Securitization & Liquidity” panel on Tuesday May 11 at 2:00PM. Use our discount code to get 15% off your registration: FSM409.
- A Comparison of Funding & Liquidity Sources (PeerIQ), Rated: AAA (Lending Times, 4/18/17)
- Marketplace Lending News Roundup – April 22 (LendAcademy,4/22/17)
Industry Update:
- Markets Send a Worrying Message About the Economy (WSJ, 4/21/17) Markets are betting on slower economic expansion.
- China Rapid Finance will be the Fifth Online Lender to IPO in the US (LendAcademy, 4/17/17) China Rapid Finance will list on the New York Stock Exchange under the ticker symbol XRF and will be the second Chinese online lender following Yirendai to go public in the US.
- Yirendai Announcement: Makes Incremental Progress in Facilitating Loan Products With Asset-Backed Security Structure (CrowdFundInsider, 4/20/17) Chinese marketplace lending platform Yirendai announced it has made incremental progress in facilitating consumer loan products with ABS structure.
- Robo-Adviser Wants to Lend You Money, Not Just Manage It (Bloomberg, 4/19/17) Wealthfront becomes first of among robo-advisers to offer loans.
- ApplePie Capital Acquires Funding Solutions & Appoints New Chief Development Officer (Crowd Fund Insider, 4/19/17) ApplePie Capital announced the acquisition of Funding Solutions.
- JP Morgan to Sell $6.9 Bn of Student Loans to Navient (Bloomberg, 4/18/17) Navient has reached an agreement to purchase JPMorgan’s approximately $6.9 Bn education loan portfolio.
- Citi CFO Says Student-Loan Market Shows Signs of Overheating (Bloomberg, 4/20/17) One in four of the nation’s 44 Mn student debtors are in default or struggling to stay current.
- Goldman FinTech Revolution Can't Come Fast Enough (Reuters, 4/18/17) Goldman’s online retail-banking may have the potential to produce far higher returns than the investment bank.
- Santander Awaits SEC Go-Ahead (AB Alert 4/21/17) Santander is close to winning SEC approval for a revised version of the trust it uses to securitize its lowest-quality auto loans.
- MoneyLion Focusing on Customer Relationship (Bankless Times, 4/18/17) MoneyLion, a balance-sheet lender, is focused on developing relationships with its borrowers through financial advice.
- Peter Renton Interviews David Kimball, CEO of Prosper (LendAcademy, 4/21/17) Proper expects to be cashflow positive on or shortly after Q2.
- Facebook is Building Brain-Computer Interfaces for Typing and Skin-Hearing (TechCrunch, 4/19/17) Facebook revealed it has a team of engineers working on building a brain-computer interface that will let you type with just your mind without invasive implants.