A recent Experian study showed that strategic defaults accounted for 23 percent of all mortgage defaults 60 days past due or greater in Q4 2011. Other findings included the following: Prime and super-prime consumers (VantageScore® credit score A and B tiers) have the highest incidence of strategic default Average outstanding mortgage balances for strategic defaulters are nearly 36 percent higher than their nonstrategic default counterparts. Listen to our recorded Webinar for a detailed look at the current state of strategic default in mortgage and an update on consumer credit trends. Source: Experian-Oliver Wyman Market Intelligence Reports and strategic default studies. VantageScore® is owned by VantageScore Solutions, LLC.  

Up to this point, I’ve been writing about loan originations and the prospects and challenges facing bankcard, auto and real estate lending this year.  While things are off to a good start, I’ll use my next few posts to discuss the other side of the loan equation: performance. If there’s one thing we learned during the post-recession era is that growth can have consequences if not managed properly.  Obviously real estate is the poster child for this phenomenon, but bankcards also realized significant and costly performance deterioration following the rapid growth generated by relaxed lending standards. Today, bankcard portfolios are in expansion mode once again, but with delinquency rates at their lowest point in years.  In fact, loan performance has improved nearly 50% in the past three years through a combination of tighter lending requirements and consumers’ self-imposed deleveraging.   Lessons learned from issuers and consumers have created a unique climate in which growth is now balanced with performance. Even areas with greater signs of payment stress have realized significant improvements.   For example, the South Atlantic region’s 4.2% 30+ DPD performance is 11% higher than the national average, but down 27% from a year ago.   Localized economic factors definitely play a part in performance, but the region’s higher than average origination growth from a broader range of VantageScore® credit score consumers could also explain some of the delinquency stress here. And that is the challenge going forward: maintaining bankcard’s recent growth while keeping performance in check.  As the economy and consumer confidence improves, this balancing act will become more difficult as issuers will want to meet the consumer’s appetite for spending and credit.  Increased volume and utilization is always good for business, but it won’t be until the performance of these loans materializes that we’ll know whether it was worth it.

With interest rates at their lowest level since 2008 and an increasingly competitive market, automotive lenders are increasing their willingness to make loans between six and seven years long: Auto loans of 73 to 84 months accounted for 14.1 percent of all new vehicle loans, up 47 percent from Q4 2010 Auto loans of 73 to 84 months accounted for 9.04 percent of all used vehicle loans, up 41 percent from Q4 2010 View our recent Webinar on the Q4 2011 state of the automotive market. Source: Experian Automotive's quarterly credit trend analysis. Download the quarterly studies and white paper.