Author Topic: Reason Behind Declining Loan Performance  (Read 3318 times)

ThinleyWangchuk

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Reason Behind Declining Loan Performance
« on: June 17, 2017, 08:57:30 AM »
http://www.businessinsider.com/prosper-and-lending-club-dont-always-verify-borrower-income-and-employment-2017-6

https://www.bloomberg.com/news/articles/2017-06-14/biggest-online-lenders-don-t-always-check-key-borrower-details

http://www.businessinsider.com/credit-card-defaults-have-spiked-as-lending-standards-fall-2017-6

"In the past two fiscal quarters, banks reported a steep rise in credit-card charge-offs — debt that companies can't collect from their customers — according to a report from Moody's....The sharp increase, the largest since 2009, is especially unusual given how strong the US employment market has been, Moody's noted. It suggests that American consumers haven't fallen on hard times so much as banks have started to loosen their standards and issue credit more aggressively."
« Last Edit: June 17, 2017, 09:01:16 AM by ThinleyWangchuk »

nonattender

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Re: Reason Behind Declining Loan Performance
« Reply #1 on: June 17, 2017, 05:18:29 PM »
Yes, after the "great tightening" of 2008, we've had historically low defaults in the macro environment (due to tightened underwriting) that have only recently begun to tick back up to historically "normal" levels.  As we approach a renormalization of macro chargeoffs, so, too, will rates need to rise to remain commensurate with the levels of risk that credit expansion will bring.  Credit expansion is ahead of rates - for now - though the Fed, which is now getting criticized in the popular press, is acting (appropriately) to make sure rates rise commensurate.

WRT unsecured consumer lending, specifically, the only thing on my near-term risk horizon is the upcoming changes to credit reporting and, thereby, credit scoring (which is dependent upon the data included in credit reports).  Many civil judgments, tax liens, etc, will soon vanish - resulting in a population of "newly credit score rich" consumers... and we're coming up on 10-year 'jubilee' for bankrupts in 2007-8, as well.

I suspect that a lot of those "newly credit score rich" will be going after housing, not necessarily unsecured credit, for their first move... and that by the time they get around to realizing they've overextended, there'll be enough debt data in their CR to insulate unsecured.
A little nonsense now and then is relished by the wisest men.

rawraw

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Re: Reason Behind Declining Loan Performance
« Reply #2 on: June 17, 2017, 08:38:06 PM »
I don't think it explains the weakness in consumer.  I haven't seen anything insight on what the cause actually is

Lovinglifestyle

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Re: Reason Behind Declining Loan Performance
« Reply #3 on: June 17, 2017, 09:16:26 PM »
It seems to me that recent yearly health insurance increases must hurt a lot of people.  Eventually things happen, more debt use is needed, and the paycheck doesn't stretch to cover normal living expenses.  When gasoline goes up at times too, as well as food, etc., it makes sense to me that more defaults happen.  Rent and mortgage comes first, at least before unsecured credit debt.

nonattender

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Re: Reason Behind Declining Loan Performance
« Reply #4 on: June 17, 2017, 09:22:18 PM »
I don't think it explains the weakness in consumer.  I haven't seen anything insight on what the cause actually is

Macro?  For macro consumer weakness, I think it's technology.  Very little of the money sucked up into the internet "black hole" comes back to consumers (or even shareholders, in many cases - some of whom buy stocks in companies where "ownership" means having no vote on the direction of a business or whether any profits are ever returned to you).  At some point, people are going to figure this out - I hope it's before they're so dependent on their phone to do everything for them that, when the phone tells them to do something, they've no choice.

Here's a good read that touches on the very same theme:

http://www.foxnews.com/opinion/2017/06/15/news-corp-ceo-almighty-algorithm-fake-news-and-other-consequences-google-amazon-and-facebooks-relentless-focus-on-quantity-over-quality.html

ETA:  Not to pick on Elon Musk, too much, but when the public's idea of a "visionary" is a rich guy who looks around Earth and says his big idea is to spend a shitload of money on going to another planet, maybe the "nerd-worship" has gone a little bit too far - ya think?

He's by no means alone in suffering from that disease - the rest of the tech moguls are about equally deficient in what I call humanity.

I'm no socialist, by the way - I don't want to "make" anyone do anything with their fortunes, but I do occasionally have to call bullshit.

« Last Edit: June 17, 2017, 10:06:11 PM by nonattender »
A little nonsense now and then is relished by the wisest men.

SLCPaladin

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Re: Reason Behind Declining Loan Performance
« Reply #5 on: June 18, 2017, 12:11:28 AM »
I think the culprit is three-fold: 1) Rising housing costs (mortgages and rent) 2) Rising health care costs and 3) Student debt.

Rob L

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Re: Reason Behind Declining Loan Performance
« Reply #6 on: June 18, 2017, 09:26:58 AM »
I think the culprit is three-fold: 1) Rising housing costs (mortgages and rent) 2) Rising health care costs and 3) Student debt.

That's the borrower side.
On the lender side declining credit standards and (in the case of LC) lower interest rates gotta be parts of the reason too.

SLCPaladin

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Re: Reason Behind Declining Loan Performance
« Reply #7 on: June 18, 2017, 11:47:17 AM »
I think the culprit is three-fold: 1) Rising housing costs (mortgages and rent) 2) Rising health care costs and 3) Student debt.

That's the borrower side.
On the lender side declining credit standards and (in the case of LC) lower interest rates gotta be parts of the reason too.

Absolutely. I put a lot of blame on LC's shoulders. I think they are at present screwing things up by not raising rates faster to provide a bigger cushion for returns in light of the uncertainty of returns.

rawraw

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Re: Reason Behind Declining Loan Performance
« Reply #8 on: June 18, 2017, 02:45:04 PM »
I think the culprit is three-fold: 1) Rising housing costs (mortgages and rent) 2) Rising health care costs and 3) Student debt.

That's the borrower side.
On the lender side declining credit standards and (in the case of LC) lower interest rates gotta be parts of the reason too.
Weaker credit standards will increase loss, but I do not see how this is a reflexive situation like real estate can be (where weakening credit impacts the performance of credit).  The weakness in consumer is separate from a lender's choice to increase their risk once things go weak.  Rates could be it, but I don't think a hundred bps make that large of a difference.  There was early evidence that oil and gas were having weakness.  Who knows!

AnilG

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Re: Reason Behind Declining Loan Performance
« Reply #9 on: June 18, 2017, 05:01:46 PM »
IMO at macro level we will not see consumer weakness unless the new credit growth slows down. Simply the growth in new credit most probably outpacing rise in delinquencies/defaults. At micro level, signs of consumer distress is everywhere. Pick any securitization, most seems to doing not as well as expected. Recently I was surprised to see even Harley Davidson securitization doing worse.
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