TransUnion pinpoints depth of COVID-19 impact on originations

A TransUnion financial hardship survey in late October showed that more than half of Americans — 54% to be exact — said they have been financially impacted by the COVID-19 pandemic.

And TransUnion’s origination data for both auto financing and personal loans reflect that effect.

Looking at originations booked during the second quarter, TransUnion reported that the auto-finance market experienced an 11.9% year-over-year decline with 6.5 million new contracts opened in Q2 2020, compared to 7.3 million in Q2 2019.

While originations decreased across all tiers, analysts pointed out this drop was particularly noticeable among subprime consumers as this risk tier declined 28.1% over the same period last year.

Despite the recent decline, TransUnion said originations are expected to improve quarter over quarter in Q3 as the auto market moves past the large-scale shutdowns from earlier this year that contributed to dealership closures.

Analysts added that subprime origination growth will likely continue to lag other risk tiers as finance companies skew their portfolios toward lower-risk consumers.

“While the overall percentage of auto accounts leveraging financial accommodation programs has been declining, there were approximately 3.8 million auto accounts in some form of accommodation at the end of September,” said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

“The consumers that are still enrolled in such programs are the ones likely experiencing the greatest financial hardship as the risk mix of these consumers has been increasingly shifting toward subprime over the last few months,” Merchant continued in a news release that accompanied the Q3 2020 Industry Insights Report.

“Performance has largely held steady, but as economic stimulus funds evaporate and consumers exit accommodation, future delinquencies may see an impact,” he went on to say.

Q3 2020 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag. Source: TransUnion

Meanwhile, TransUnion discovered personal loan balances decreased, too, as lenders and consumers navigated COVID-19.

Analysts determined total balances in the consumer-lending industry declined to $151 billion in Q3 2020, down from $156 billion in Q3 2019, following a dramatic drop off in originations due to the COVID-19 crisis

TransUnion explained the first full quarter of COVID-19 impacted originations — which was Q2 2020 — created a decline of 46.2% year-over-year as lenders temporarily exited the market, tightened underwriting and shifted their portfolio mix toward lower risk consumers.

Analysts noted that decreased consumer demand for credit also contributed to the drop-off as stay-at-home orders drove decreased spending and stimulus funds provided additional liquidity.

TransUnion mentioned that performance has remained stable as serious delinquencies improved to a 10-year low of 2.53% in Q3. Delinquencies were down across all risk tiers, with the exception of super prime, which remained low, but ticked up to 0.03% from 0.02% in Q2.

“The pandemic drove a nearly 50% reduction in consumer lending originations in Q2 2020 versus the prior year,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion.

“Lender pullback and decreased consumer demand continued over the past quarter as we saw total balances in the consumer lending market contract for the first time since early 2012,” Pagel continued in the news release.

“Lenders are expected to ramp up originations in Q4 for the holiday season as investor demand returns to the sector,” she went on to say. “The loans outstanding continue to perform well with delinquencies at the lowest point in a decade even as consumers begin to exit forbearance programs.”

Q3 2020 Unsecured Personal Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag. Source: TransUnion.