Transcript Title of Presentation

An Outlook on Consumer
Credit Health
Cris deRitis
Senior Director,
Consumer Credit Analytics
Moody’s Analytics
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Rachel M. Bell
Senior Director,
Scores and Analytics
FICO
Consumer credit quality is steadily
improving, but growth is restricted.
Rising pent-up demand and
confidence will drive expansion.
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© 2014 Fair Isaac Corporation. Confidential.
FICO® Scores and Consumer Credit Risk
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FICO® Score Distribution Remains Stable
Recession drove
increase in tails of
score distribution
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© 2014 Fair Isaac Corporation. Confidential.
Consumers who could,
“buckled down” by
reducing debt—causing
scores to increase
Subprime Lending Shows Some Signs of Recovery
Percent of Newly Booked Accounts Below 620 FICO® Score
15% net
decrease
36% net
decrease
80% net
decrease
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© 2014 Fair Isaac Corporation. Confidential.
Subprime Lending Shows Some Signs of Recovery
Percent of Newly Booked Accounts Below 620 FICO® Score
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© 2014 Fair Isaac Corporation. Confidential.
Consumers Continue to Deleverage
7
Year
No credit card
% of population with
utilization <50%
% of population with
utilization >=50%
2006
15.6%
62.7%
21.7%
2010
19.6%
55.7%
24.7%
2012
19.5%
57.0%
23.5%
2013
20.1%
56.9%
23.0%
© 2014 Fair Isaac Corporation. Confidential.
Increase in Total Revolving Credit Available to
Consumers with Credit Cards
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Proportionally More Accounts Opened in Last 12 Months
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Overall Consumer Credit Risk has Stabilized and
Returned to Pre-Recession Levels
► Very
bad quality has been
written-off
► Good
payers and newer higher
quality booked accounts are
higher scoring
Odds of Repayment
(value:1)
2005-2006: 30.3
2008-2009: 15.5
2012-2013: 30.3
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© 2014 Fair Isaac Corporation. Confidential.
Performance on Real Estate Loans Continues to Improve
► Performance
in pre-recession
period inflated
► Remaining
loans originated in
lead up to recession still weighing
down overall performance
► Newer
vintages performing at
much higher levels due to strict
lending standards in place
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© 2014 Fair Isaac Corporation. Confidential.
Odds of Repayment
(value:1)
2005-2006: 161.5
2008-2009:
18.5
2012-2013:
44.1
Auto Finance Companies Are Experiencing
High Performance of Existing Accounts
► Auto
Industry saw the least
impact through recession
► Loan
performance in 2012/2013
almost exclusively loans
originated post recession
► Performance
at a score of 700
is 2 times better in 2013 than it
was in 2008
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© 2014 Fair Isaac Corporation. Confidential.
Odds of Repayment
(value:1)
2005-2006: 141.5
2008-2009:
70.3
2012-2013: 141.5
Looking Ahead—Protracted Slump* Conditions
► Under
the more severe
economic scenario*—consumer
repayment performance is
expected to deteriorate, with the
largest impact hitting in 2014
2013
2014
2015
2016
Odds of Repayment
(value:1)
2013: 26.6
2016:
*S4: “protracted slump” Economic Scenario from Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
15.3
Looking Ahead
Baseline*
► Under
the Baseline Scenario*,
performance is expected to
remain steady
2013
2014
2015
2016
*Baseline Economic Scenario from Moody’s Analytics
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Household Credit Outlook
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As Consumers Lead, Businesses Will Follow
GDP Growth, % Year Over Year
8
Consumption
Investment
Government
Net Exports
GDP
6
4
2
0
-2
-4
-6
00
01
02
Sources: BEA, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Relative Consumer Indebtedness Has Improved And…
Ratios, %
130
25
HH debt/GDP (L)
HH debt/disposable personal income (L)
HH debt/net worth (R)
120
110
20
100
15
90
80
10
70
60
5
50
40
0
80
83
86
Sources: Federal Reserve, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
89
92
95
98
01
04
07
10
13
…Debt Service Burdens Near Historic Lows
% Disposable Income
13.5
18.5
Debt service (L)
13.0
18.0
12.5
17.5
12.0
17.0
11.5
16.5
11.0
16.0
10.5
Financial obligations (R)
10.0
9.5
15.0
80
85
Sources: Federal Reserve, Moody’s Analytics
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15.5
© 2014 Fair Isaac Corporation. Confidential.
90
95
00
05
10
Recession Painful But US Consumers in Better Shape
Household Debt, % of Personal Disposable Income
170
Canada (US definition)
United Kingdom
150
United States
130
110
90
70
90
95
00
Source: Statistics Canada, Federal Reserve, Bank of England, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
05
10
Labor Market Slack Declining…Slowly
Unemployment Rate, %
Less than 5
5-14 weeks
15-26 weeks
More than 26 weeks
12
10
8
6
4
2
0
06
07
Sources: BEA, BLS, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
08
09
10
11
12
13
14
Households Are Borrowing Again…
Outstanding Account Balances, % Change Year Ago
Auto
First Mortgage
Student
Bankcard
20
15
10
5
0
-5
-10
-15
-20
07
08
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
09
10
11
12
13
14
…As Performance Improves Across Products
30+ Days Delinquent, % of $ Volume
Auto
Bankcard
Consumer finance
Mortgage
Student loan
12
10
8
6
4
2
0
06
07
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
08
09
10
11
12
13
14
Canadian Borrowers Are Performing
90+ Days Past Due, % of Outstanding $ Balance
10
Bank Installment Loan
Bank Revolving Loan
National Credit Card
Auto Finance
Personal/Sales Finance
8
6
4
2
0
08
09
Sources: Equifax Canada, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
10
11
12
13
14
US Auto Credit Originations Are Tracking Sales
Origination Volume by Credit Score and Origination Quarter, $ billion
200
700+
660-699
620-659
<620
New Vehicle Sales SAAR, mil (R)
180
160
140
120
21
19
17
100
15
80
13
60
40
11
20
0
9
07
08
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
09
10
11
12
13
14
Subprime Auto Balances Below Their Prior Peak
Outstanding Balances, $ bil
% change since 2007
<620
-23%
620-659
+6%
660-699
+13%
700+
+29%
600
500
400
300
200
100
0
07
08
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
09
10
11
12
13
14
Consumer Credit Issuance Is Returning
Available Credit on New Originations, $ billion
200
Bankcard
Consumer Finance
150
Retail
Other
100
50
0
06
07
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
08
09
10
11
12
13
Mortgage Refinance Boom Coming to an End
Initial Balance of New Issuance, $ billion Annualized
5,000
9
Purchase volume, $ bil (L)
Refinance volume, $ bil (L)
30 yr fixed rate mortgage rate (R)
4,500
4,000
8
7
3,500
6
3,000
5
2,500
4
2,000
3
1,500
1,000
2
500
1
0
0
00
01
02
03
04
Sources: MBA, Freddie Mac, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
05
06
07
08
09
10
11
12
13
14
15
16
HELOC Originations to Rise…With Fewer Draws
Available Credit/Outstanding Balance, $ bil
120
800
New credit, $ bil (L)
Outstanding balances, $ bil (R)
700
100
600
80
500
60
400
300
40
200
20
100
0
0
06
07
08
09
10
11
Sources: Mortgage Bankers Association ©, Freddie Mac, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
12
13
14
15
16
Improving Economy Keeps Default Rates Low
Annualized Credit Card Write-off Rate, % of $ Volume
12
Fed Baseline
10
8
6
4
2
07
08
09
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
10
11
12
13
14
15
16
Improving Economy Keeps Default Rates Low
Annualized Credit Card Write-off Rate, % of $ Volume
12
Fed Severely Adverse
Fed Baseline
10
8
6
4
2
07
08
09
Sources: Equifax, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
10
11
12
13
14
15
16
Canadians Likely to Experience Long Adjustment Period
Household Debt, % of Personal Disposable Income
180
Debt 0%, Income 4.3%
Debt 2%, Income 4.3%
160
Debt 3%, Income 4.3%
140
120
100
Growth Rates
80
60
90
95
00
Source: Statistics Canada, Moody’s Analytics
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© 2014 Fair Isaac Corporation. Confidential.
05
10
15
20
25
30
Looking Ahead
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© 2014 Fair Isaac Corporation. Confidential.
Consumer Credit Health Holding—with Lots of Opportunity
► Delinquency
and default rates have improved sharply across most
lending products
► Consumers
that have fallen out of the market won’t be able to re-enter
until businesses have an increased appetite for risk (and growth)
► Continued
pent-up demand will fuel the economy as confidence
increases
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© 2014 Fair Isaac Corporation. Confidential.
Thank You!
Cristian deRitis
[email protected]
+1.610.235.5237
Rachel M. Bell
[email protected]
+1.415.491.7055
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
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Cris deRitis
[email protected]
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© 2014 Fair Isaac Corporation. Confidential.
Rachel M. Bell
[email protected]
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