"My Credit Score Is Terrible...I'm Surprised They'd Give Me So Much [Credit]"

"Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back...

 

Sure enough Americans are slamming themselves into deeper and deeper debt - at lower and lower levels of credit quality - to attempt to maintain their exuberant iPad-eating lifestyles. As WSJ reports, Credit-card lenders are courting riskier borrowers more aggressively than they have since the financial crisis in a bid to jolt revenue in a period of sluggish growth and tight regulation.




Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump from a year earlier and the most since 2008, according to data provided exclusively to The Wall Street Journal.

 

...

 

About one-third of all credit cards issued in that period were to subprime customers, the biggest share in six years, according to Equifax.

 

"Lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," said Randy Hopper, vice president of consumer lending at Navy Federal Credit Union, an institution based in Vienna, Va., that is the largest credit union in the U.S.

With banks sufferening from a collapse in trading revenues (thanks to the Fed), they are desparate for any sources of revenue and subprime borrowers are especially attractive to banks because they tend to pay higher interest rates and are more profitable as long as they pay their bills (agains in a perfect virtuous circle as the subprimes are not benefitting from the Fed's reverse-robin-hood poilicies)...




The average rate for such customers was 21.1% in the first quarter, up from 20.2% a year earlier, according to research firm CardHub.com. In contrast, the highest-quality borrowers paid 12.9% on average in the first quarter, virtually unchanged from a year earlier.

 

Subprime borrowers are typically defined as those with FICO or Equifax Risk credit scores below 660 on scales that top out at 850. Such borrowers often have missed payments on debt, suffered foreclosures, filed for bankruptcy protection or have no credit history.

Even the borrowers themselves are stunned at banks willingness to blow money out the wazoo...




Stephanie Sannar said she and her husband, Toby, of Colorado Springs, Colo., sold their home for less than they owed on their mortgage in 2012. Mrs. Sannar, 42 years old, an emergency-room nurse, said her credit score fell to about 650 following this process since the mortgage was in her name.

 

Still, the couple has been receiving many credit-card offers in the mail, and Mrs. Sannar said she recently signed up for a Citigroup credit card with a credit limit of about $15,000.

 

"I was surprised they'd give so much," said Mr. Sannar. "The credit-card offers come every week."

 

...

 

Adam Wasdin, 31, of Raynham, Mass., said he has been behind on payments for about a year on four of his private student loans. He said he was surprised to see credit-card offers suddenly arrive in the mail from lenders including Bank of America and J.P. Morgan Chase over the last six months.

 

Mr. Wasdin, a distribution driver for a local newspaper in the area, said he hasn't signed up for any of the offers and is sticking with his debit card.

 

"It went from nothing to offers maybe once a month," he said. Mr. Wasdin is reluctant to check his credit score because he figures it is low given his missed payments.

 

"My credit score is probably terrible," he said.

And market participants will declare based on historical performance how this is sustainable...




Charge-offs, or losses from unpaid credit-card debt that banks have declared uncollectable, fell 13% to $27.7 billion in 2013 from a year earlier, according to data from the Federal Reserve compiled by CardHub.com. At the peak in 2009, charge-offs totaled $85.4 billion.

We are not sure how useful it is to use 2013 default rates to justify lending on a revolving basis in 2014? How did that work in 2007/8? Maybe.. just maybem, th ebanks just hit their limit...




It isn't clear how long banks will keep wooing subprime borrowers. The Fed's April survey of senior loan officers found that lenders anticipate growth in outstanding loans to their most creditworthy customers this year, but only "a smaller net fraction" of banks expect more growth in loans to nonprime borrowers.

Though we suspect not...




"You're starting to see an environment where issuers are feeling more comfortable to extend credit," said Jason Kratovil, vice president of government affairs for payments at the Washington-based Financial Services Roundtable, which represents financial-services institutions. "Even though [those borrowers] could be considered subprime, they're still creditworthy."

Onward and upward leverage... what could go wrong.










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