American consumers are in much better financial shape than they were a few years ago.
This bodes well for more origination of consumer-related assets, according to panelists at Information Management Network’s ABS East Conference.
“Consumers are in a good place to take on more debt,” said Elen Callahan, a director in the consumer ABS research at Deutsche Bank.
But whether they actually do hinges on banks’ willingness and incentives to lend as well as on the impact of the one area of indebtedness that is a lot bigger and more troubling than in 2008: student loans.
Judging by a number of metrics, the American consumer has left behind the worse of the crisis. Some 92% of households are current on their debt, from 88% in 2010; delinquencies are down in every asset class apart from student loans, as pointed out by Gunnar Blix, a senior analyst at Equifax.
Home prices are rising, and in some areas of the countries, vertiginously so. They are still down 20% from their peak but the increases have already fed into higher consumer confidence.
The jobs picture — if far from optimal — is also on the mend. One indicator of the employment market, the number of job openings, is now at four million, from two million in 2009. Callahan predicts that the unemployment rate will “inch towards” 7% by the end of the year from 7.3% presently.
All of this could help drive up originations, and in turn, the securitization of those assets.
It is already the case for auto loans and underwriting standards have been easing at the same time. The average FICO score in prime pools is marginally weaker year-on-year, even though it is still higher than pre-crisis, said Sanjay Wahi, a senior analyst at Moody’s Investors Service.
But credit card losses in both the bank and retail segments are at all-time low, and this has not translated into a robust uptick in credit card debt or securitization of those receivables.
“Banks continue to look at securitization as an important strategic funding and risk management option,” said Scott Sehnert, a managing director at Standard & Poor’s. But he said that regulatory pressures were keeping banks from securitizing more. He forecast fluctuating volumes year-to-year, with some issuers up and others down. This year, for instance, Chase scaled back while Citi ramped up.
The housing price increases may also not be quite as heady as they’re being made out to be, said Bill Rayburn, CEO at software technology firm FNC. Digging deeper into the data, Rayburn said, reveals that many of the increases come from “move-up” properties that may see repeat sales and are not representative of the broader real estate market in certain areas.
As a result, the huge increases being reported in some comeback markets are exaggerated. But Rayburn said the recovery is very real, as evidenced in part by the fast shrinking discount at which foreclosed properties are selling. They’ve tightened from 25% to the 8.5% range.
Even with the tailwind of rising housing prices and the concomitant increase of homeowner equity, American consumers still have the millstone of student loans hanging their necks. The total volume of student loans has exceeded $1 trillion, having surpassed credit card debt in 2010. And with college tuition going up 8% a year — as cited by Nellie Gambarin, a credit analyst at Depfa Bank — that millstone is only going to get heavier.