Next month marks the 10-year anniversary of the collapse of Lehman Brothers, generally viewed as the moment the Great Recession began. But a decade later, much has changed in the consumer credit marketplace, most notably and overtly in the mortgage sector, according to the Q2 2018 Industry Insights Report by TransUnion that looks at the meltdown's effect on consumer access to credit and the relationship they have with it.
“From a credit perspective, the financial crisis of 2008 was—and hopefully will remain—one of the most trying times in Americans’ lives,” said Matt Komos, VP of Research and Consulting for TransUnion’s Financial Services business unit. “Ten years later, we have some historical perspective on the repercussions from that period, and fortunately for the overall economy, consumers are generally in a much better place today.”
According to the report, changes in consumer and lender behavior are most evident in the mortgage industry.
The proliferation of subprime mortgage lending in the mid-2000s, among other market factors, led to massive increases in the percentage of borrowers 60-plus days past due,” the report stated. Serious delinquency peaked above 7 percent in 2010, but at the end of Q2 2018, the serious mortgage delinquency rate was 1.67 percent.
In the ensuing decade, tightening, then expanding, access to credit combined with technological innovations to give consumers more options for borrowing, the report stated. As a result, Komos said, “we have seen a rebound in originations across all products since hitting their lowest respective levels from the crisis.”
Originations, he said, “have rebounded from a low observed in Q1 2014, but are still down relative to 2008. The downward shift was driven by a large reduction in subprime lending due to lender contraction immediately following the crisis.
Komos said recent growth in mortgages is mostly coming from the lowest-risk consumers.
“There are more super prime accounts in 2018 than there were in 2008, though account volume has reduced for every other risk tier,” he said. “Most recently, however, we have started to observe lenders providing greater credit access across the full risk spectrum, compared to the period 2010 to 2015, as the economy and housing market have recovered.”
According to TransUnion, the subprime share has actually dropped by 25 percent since 2008.
Also, the report stated, origination volumes are up across risk tiers but have increased most noticeably for prime and prime-plus consumers.
“Together, consumers in these two risk tiers have taken a lot of share from other risk tiers in terms of both accounts and balances,” Komos said. “More specifically, 41 percent of personal loan balances sat in these tiers in 2008, while 53 percent now sit with these tiers today.”
Joe Mellman, SVP and Mortgage Business Leader at TransUnion, said declines in the mortgage delinquency rate are “largely a result of the better credit quality of recent homebuyers and a housing market which has seen sustained price appreciation.”
Still, Mellman said, homeownership rates continue to remain far below recent historical averages.
“The homeownership rate reached approximately 70 percent at the beginning of the decade,” he said, “but has since declined, maintaining 64.2 percent since Q3 2017. Those consumers making home purchases tend to be taking on larger loans, as seen by the continued rise in average debt per mortgage borrower.”