All posts by Scott Schulz

Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead? Part 2

Auto Lending Credit Trends #2

In my last blog post, I shared a new FICO research study on credit trends in auto lending. One key finding highlighted that the size of auto loans has been increasing faster than inflation since the recession. So how are consumers affording these larger loans? It’s simple: consumers are ending up with longer terms for their car loans: While five-year loans were the most popular length of terms in 2009, there has been a swing towards opening six-year loans since then. Seven-year loan terms—while still rare at ~5% of all new loans—seem to be increasing in popularity as well. This trend towards more six-year loans occurred across all FICO® Scores. This shift may signal an increase in credit risk for the industry because six-year loans have historically had higher delinquency rates. However, confirming this requires some care in our analysis. The lingering effects of the recession, average age of the... [Read More]

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Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead?

Auto Lending Credit Trends

The gist of recent media coverage on the state of US auto lending can be summarized by the title of a recent New York Times article: As Auto Lending Rises, So Do Delinquencies. With this concern in mind, FICO recently conducted a research study to examine the credit quality of US consumers with auto loans, as well as other significant credit trends in auto lending. Our findings tell an interesting tale: Banks have been mildly decreasing their car loan underwriting standards. Overall indebtedness for many consumers has been declining since the Great Recession. The size of car loans has been increasing faster than inflation since the recession. More consumers now have six-year auto loans instead of five-year loans, which were the previous standard. These six-year loans have higher delinquency rates, thus this shift to longer-term loans is likely to result in higher losses for US auto loans over the next... [Read More]

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Risk & Compliance Medical Collections Rates Highest for Consumers Aged 24-46


Since medical costs often increase as we age, one might expect that the rate at which medical bills are unpaid and then sent to collections companies would also increase with age – at least until age 65 when US citizens qualify for Medicare. New FICO research shows that not this not the case. Looking at credit bureau data as of July 2016, medical collections reporting – both paid and unpaid collections greater than $99 – breaks down by age as follows: While the peak of this curve occurs at age 27, the rate of consumers with medical collections is uniformly high for ages 24 to 46. Over a quarter of consumers in that age range have at least one such collection showing on their bureau report. After age 46, we see the rate slowly drop, and as expected, it drops substantially after age 65. Part of the issue stems from... [Read More]

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Risk & Compliance Research Shows Mortgage Delinquencies Rise for Older Consumers


FICO research consistently shows that older consumers have higher FICO® Scores than their younger counterparts. But a recent report by the Mortgage Bankers Association (MBA) provides evidence that people become less reliable at making their mortgage payments as they age. Can both of these assertions be right? To get to the bottom of this, FICO conducted fresh research on credit behavior trends by age. Our study revealed not only that mortgage delinquency rates rise for US consumers beyond a certain age, but that these delinquency increases were observable across other loan types. Is this cause for concern? And was the MBA correct in their conclusion that declining memory and other cognitive skills are the main contributing factor? In this post, I’ll share our research findings and draw a few conclusions based on what we see in the data. Delinquency Trends by Age For this research, we examined payment behavior using... [Read More]

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Risk & Compliance Are Credit Standards Relaxing as the Housing Market Heats Up?


With some US housing markets heating up, new FICO research shows a potentially troubling trend: credit standards appear to be loosening, particularly in parts of California and Texas. In this blog post, I’ll share key findings from this mortgage research study. First, we identified the cities experiencing the largest home price increases since the Great Recession – specifically, Q1 2015 home prices compared to the minimum home price since Q4 2009. The chart below illustrates the Federal Housing Finance Agency’s (FHFA) House Price Index (HPI) for the five Metropolitan Statistical Areas (MSAs) with the largest housing price increases during this timeframe: Las Vegas was one of the hardest hit cities during the recession. But what’s most striking about this analysis is the concentration of Central California MSAs among the top five. All of these cities saw severe home price decreases, but in recent years, it’s very much a story of... [Read More]


Risk & Compliance HELOC Resets: Here We Go Again?


In my last post, I shared new FICO research on home equity line of credit (HELOC) resets. The good news: after examining credit performance of HELOCs older than 10 years, we found little evidence that HELOC bad rates increase dramatically after their reset dates. However, our research uncovered a potential new concern: with the US housing market recovering, consumer appetite for HELOCs appears to be increasing again. Consider the current balances of HELOCs by the year booked: As house prices fell during the Great Recession, significantly fewer HELOC loans were booked. However, as house prices recover, consumers are once again taking advantage of these loans in large numbers, as shown by the increase in the blue line in the graphic above. In the past year, we find balances on HELOCs similar to what was booked in 2003. While recent HELOC growth is slightly less pronounced compared to the years prior... [Read More]

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Risk & Compliance HELOC Resets: Greater Risk on the Horizon?


In the run-up to the Great Recession, millions of US consumers borrowed large amounts via home equity lines of credit (HELOCs). Since these loans are about to hit their 10-year reset marks, I’ve been sharing research findings from our latest study on HELOCs. We’ve found good evidence that, after these HELOCs hit their reset dates, borrowers are indeed paying more and/or refinancing. This begs the question: do HELOCs that continue beyond their reset date have a drop in credit performance? In other words, are higher payments causing more borrowers to default on these loans? To answer this, we examined HELOC one-year delinquency rates (90 or more days past due) across three different points in time, comparing a recent timeframe to one at the height of the Great Recession and another prior to the recession. Here’s the recent snapshot: While bad rates start to increase around the fifth year of maturity,... [Read More]

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Risk & Compliance HELOC Resets: Cause for Concern?


Worries about widespread home equity line of credit (HELOC) resets have been growing slowly but steadily in recent years. Over the next few years, HELOCs granted to millions of US homeowners prior to the Great Recession will reach their 10-year mark, which is when the bulk of HELOCs “reset” – that is, they become closed-end loans, and any remaining balance must be paid off in the following years. When these lines of credit convert from interest-only to principal + interest, consumers will likely see significant increases in their monthly payments. While some may refinance into another loan, there is concern that those who do not refinance may charge-off at increased rates. As a result, the banking industry faces a potential double-whammy of larger volumes of HELOCs hitting their reset dates, along with greater loss rates on those larger volumes. With that in mind, we undertook a research study to better... [Read More]

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