As Originations Decline, Consumer Interest in HELOCs Inches Upward

TransUnion has released the Q3 2022 Quarterly Credit Industry Insights Report (CIIR), showing Q3 of 2022 saw more consumers turning to unsecured personal loans and credit cards as a means to help fend off the financial pressures brought on by inflation. The report also shows that while delinquencies for most credit products remain in line with pre-pandemic levels, they continue to rise from low levels seen in 2021.

“Consumers are being pressured on multiple fronts, first by this environment of high inflation, and secondarily by the higher interest rates that the Federal Reserve is implementing to tamp it down. However, as long as employment numbers remain strong, there should continue to be a steady flow of customers seeking access to new credit products, credit cards and personal loans in particular, and concurrently, an ample supply of lenders willing to offer credit to them,” said Michele Raneri, VP of U.S. research and consulting at TransUnion. “Delinquencies remain in line with historical levels for most credit products. However, levels have been rising over the past year, particularly among subprime consumer segments, and should be monitored in the coming months to look for similar increases in other credit risk tiers.”

As credit card balances continue to grow, bankcard balances hit a record high of $866 billion in Q3 2022, representing a year-over-year increase of nearly 20%. This increase was heavily driven by growth among Gen Z and Millennial borrowers, among whom balances grew by 72% and 32%. Private label balances are also at a record high — up 7.3%. Private label total and average credit lines have also increased to record highs, as have average number of accounts per consumer. Delinquencies have also risen and in Q3 2022 were slightly higher than the level seen pre-pandemic in Q3 2019. Bankcard charge-offs continued to decline, down for the sixth consecutive quarter.

Credit cards see highest balances on record, largely driven by non-prime growth and a high inflation environment

Bankcard originations increased to 21.3 million in Q2 2022, a 10.7% growth year-over-year, with significant growth seen in the subprime (+12.5%) and super prime (+15.2%) risk tier segments. Private label originations increased to 12 million, with 8.4% growth year-over-year. The subprime share of overall private label originations increased to 22.5%.

Total bankcard balances in Q3 2022 increased to a record level, $866 billion, representing a 19% growth year-over-year, driven by card use across all risk tiers and recent high origination growth in non-prime segments. Total private label balances increased 7.3% year-over-year, driven by subprime consumers, while average consumer balance reached the highest point since Q2 2020. Total available bankcard credit lines and average credit lines per consumer are at an all-time high, with consumers having access to a record number of cards in their wallets, again driven by growth in prime and below segments. The 90+ delinquency rate increased to 1.94% in Q3 2022, which was slightly above the 1.82% seen in Q3 2019.

“In this inflationary environment, consumers are increasingly turning to credit, as evidenced by the record total bankcard balances this quarter," said Paul Siegfried, Senior VP and credit card business leader at TransUnion. "This is particularly true among the subprime segment of consumers. Delinquencies are rising, which is to be expected given the increase in consumers getting access to credit, many for the first time. However, the numbers remain in relative alignment with historical pre-pandemic levels of 2019. We are likely to see continued growth in credit card usage as increased interest rates and inflation continue to put pressure on consumers while employment numbers remain strong.”

Personal loan consumers reach a record 22 million as below prime balances continue to grow

As of Q3 2022, 22 million consumers had an unsecured personal loan, the highest number on record, highlighting the expanding acceptance and usage of this product type by consumers. Originations in Q2 2022 (viewed one quarter in arrears) grew 36% YoY to reach six million, with all credit tiers experiencing 30%+ growth. Consequently, total personal loan balances in Q3 2022 continued to grow, reaching $210 billion – a 34% increase over last year. Balances grew at a much higher rate for below prime risk tiers (up 58%) compared to prime and above risk tiers (up 24%). As subprime balances make up a larger and larger share of personal loan balances, serious borrower delinquency (60+ days past due) has continued to grow and now exceeds pre-pandemic levels –the borrower delinquency rate stood at 3.89% as of Q3 2022, a YoY increase of 54% and the highest level since 2014.

“Lenders’ expansion into below prime risk tiers has been a key driver of recent growth in unsecured personal loan originations," said Liz Pagel, Senior VP of Consumer Lending at TransUnion. "Additionally, originated loan amounts and average consumer balances have continued to increase, partially driven by higher prices. As expected, increased lending to higher risk tiers drove increased overall delinquency rates, with serious delinquencies now exceeding pre-pandemic levels. As we look to the rest of 2022 and into next year, lenders will likely shift their originations focus towards prime and above credit risk tiers as they look to moderate risk in their portfolios while continuing to grow.”

As mortgage originations decline, consumer interest in home equity lines and loans rises

The slowdown in mortgage originations continued to accelerate in Q2 2022, down 47% from Q2 2021. At the same time, originations volume stood at 1.9 million, on par with Q2 2019 – which was part of one of the best recent years of mortgage originations prior to the pandemic. For the fifth consecutive quarter, in Q2 2022 purchases made up the bulk of total origination volume, outnumbering refinance volume three to one for the quarter, with the originations share up 24 percentage points from 53% in Q2 2021 to 77%. Purchase volumes decreased from 1.9 million in Q2 2021 to 1.5 million in Q2 2022 (down by 23% YoY) while refinance volumes decreased from 1.7 million in Q2 2021 to 425,000 in Q2 2022 (down by 74% YoY). The amount of equity that mortgage holders have available to tap continued to grow, hitting an aggregate total of $19.6 trillion in Q2 2022 (latest data available) and is up 22% YoY and 63% over the last five years. Approximately 84 million consumers have available equity in their homes, with a median equity of $236K.

Homeowners continue to tap that equity, with HELOC and home equity loan originations increasing year-over-year by 47% and 43%. The average credit line for new HELOCs is up 7% year-over-year from $113K to $121K. While serious mortgage loan delinquencies linger near record lows, after years of continued declines, this has leveled out and has remained flat for the past year. Even with low and stable mortgage delinquencies, the current macroeconomic volatility means that lenders should continue to monitor their portfolios for any changes in this trend.

“HELOCs and Home Equity Loans are growing at dramatically higher rates than in recent years,"said Joe Mellman, Senior VP and mortgage business leader at TransUnion. "Considering that homeowners had a cumulative total of $604B in non-mortgage debt, these products are attractive options for homeowners because they can use their available home equity to pay off more expensive debt while keeping their existing low interest rate mortgage in place, which can mean saving money on a monthly basis. For example, if a homeowner has $10,000 in credit card debt, by tapping their home equity to consolidate that debt at the lower interest rate, they could save around $700 a year. Lenders can benefit from this as well by adding to their portfolios and realizing this cross-sell opportunity. Lenders should utilize data and analytics from companies like TransUnion to understand how much equity each homeowner has access to, and create customized messages to educate individual consumers on how tapping their home equity can benefit them.”

Auto originations down, delinquencies tick up as the industry continues to recover from disruption

Originations in Q2 2022 were down 14.9% year-over-year from Q2 2021, but when compared to the pre-pandemic Q2 2019, originations for Q2 2022 were down 4.1%. New vehicle inventory shortages continue to be a factor driving down originations, with super prime originations decreasing 18.5% year-over-year. As a result, used vehicles made up the majority of vehicles financed at 60%, up from 55% in Q2 2021. Despite some recent easing in vehicle price gains, affordability remains a concern for consumers as average amounts financed are up year-over-year, with new auto loans increasing 12% to $40,906 and used up 17% to $28,072. Monthly payments for new auto loans increased 13.7% to $679, while used payments were up 16.1% year-over-year. Total auto loan balances stood at $1.49 Trillion in Q3 2022, up from $1.46 Trillion in Q2 2022. Delinquency rates have risen over the past year, but the performance of recent origination vintages remains in line with that of originations in prior years.

“Supply chain challenges, while easing moderately in recent months, continue to affect the auto industry," said Satyan Merchant, Senior VP and automotive business leader at TransUnion. "Furthermore, inflation and rising interest rates have impacted consumer affordability, particularly among lower priced vehicles, with the trend of rising monthly payments continuing for both new and used vehicles. While pre-2021 vintages generally remain in positive equity positions, newer vintages face higher originating LTVs on high-priced vehicles. Delinquencies are up, particularly among subprime consumers, a trend which we expect to continue for the immediate near-term. However, the overall delinquency rate remains in relative alignment with historical norms.”

To read the full report, including more data, charts and methodology, click here.