Bank loan quality remains high, but concerns persist
Over the past week, a sample of major banks reported a slowdown in mortgage origination, but improved third-quarter auto loan production and overall loan quality that a banker called “better than planned”.
Nonetheless, several mentioned concerns about unemployment and household financial distress that could hurt results over time.
Banks began reporting income in the second week of October, while most credit union call reports won’t be available until the end of the month.
For Bank of America of Charlotte, North Carolina, JPMorgan Chase of New York and Wells Fargo of San Francisco, mortgage originations in the three months ended September 30 were $ 90 billion, up 4 , 9% from the third quarter of 2019. Results were well below their second-quarter creations, which rose 15.1% to $ 92 billion.
The Mortgage Bankers Association forecast on Sept. 18 that third-quarter first mortgage originations would rise 32% to $ 860 billion, after rising 85% in the second quarter to $ 928 billion.
Auto loan originations for Ally, Chase and Wells Fargo totaled $ 26.6 billion in the third quarter, up 5.1% from the third quarter of 2019. In the second quarter, auto creations fell 16.3% to $ 20.5 billion.
Credit unions do not report auto loan arrangements to the NCUA, so the only measure is portfolio balances. As of June 30, credit unions held a total of $ 378.3 billion in auto loans, up 1.7% from the previous year.
Among all banks, auto loans stood at $ 485.5 billion as of June 30, up 3.7%, according to the FDIC.
At Bank of America, Chase and Wells Fargo, auto loan portfolios fell 0.4% to $ 157.9 billion in the 12 months ending September 30 – an improvement from a decline of 1 , 1% in the second quarter to $ 156.5 billion.
While bank reports provide an early indication of credit trends, they also provide insight into concerns among for-profit financial institutions.
During conference calls, some bragged about the strength of their results and the quality of their loans, while expressing concern about the economy.
Banks reported that most of those who received a second-quarter loan deferment had left the programs by September 30, and few customers after the deferment had missed subsequent payments.
The quality of loans, whether measured by default rates or net cancellation rates, has remained low. At Ally, the net cancellation rate for all loans was 0.41% in the third quarter, compared to 0.58% in the second quarter and 0.83% in the third quarter of 2019.
“Credit performance remains strong and better than expected,” partly reflecting the resilience of consumers, Ally CFO Jennifer LaClair said on Friday.
Ally’s net write-off rates for auto loans were 0.64%, up from 0.76% in the second quarter and 1.38% in the third quarter of 2019.
For now, everything looks good among credit unions too, CUNA economist Jordan van Rijn said Wednesday. Mortgages remain strong and he said he expects auto lending to pick up in the second half of this year and next. And so far, the quality of the loans has been maintained.
“We haven’t really seen an increase in delinquencies or write-offs at credit unions,” van Rijn said.
“One of the main factors is that credit unions are working with their members to try to help them as much as they can with postponements and abstentions. It really helped people.
Chase CEO Jamie Dimon said the chances of a better recovery would be increased by some form of renewal of federal unemployment assistance and paycheck protection program forgivable loans, combined with a social distancing and other health measures to contain the pandemic.
“There are a lot of people who are under a lot of stress and tension who will not be able to survive another year of complete shutdown,” he said.
Chase CFO Jennifer Piepszak said federal aid was supposed to be a bridge for households and small businesses.
“It remains to be seen whether the bridge will be long and strong enough to bring people back to jobs and bring small businesses back to normal… remains to be seen,” she said.
Dimon said Chase was building up his reserves with the expectation that federal aid would not be renewed by the end of the year.
The additional $ 600 per week Federal Unemployment Assistance, the Paycheck Protection Program and other pandemic relief programs added about $ 6,965 per person to personal income over the past three months. are completed on June 30, according to a report by the United States Bureau of Economic Analysis released Thursday.
The assistance helped personal income increase 7.6% from the first to the second quarter on a seasonally adjusted basis. Without the aid, personal income would have fallen 4.6%, according to BEA data.
Van Rijn of CUNA said federal pandemic aid has helped reduce delinquency rates, but further help is unlikely to be available before the November 3 election – possibly in December or in January, if at all.
“The more time goes by without more stimulus money, the harder it will be for unemployed people to pay their bills,” van Rijn said. “Maybe some people will, but many will not. “
Nationally, MBA found that 3.2 million homeowners were on a forbearance plan as of Oct. 4, representing 6.8% of mortgages, down from 7.2% a week earlier.
MBA chief economist Mike Fratantoni said many borrowers automatically abandon their plans after hitting the six-month mark without a plan.
“Borrowers with federally guaranteed mortgages should contact their service agent for an additional six-month reprieve if they are still affected by the pandemic,” he said. “Service officers are making outreach efforts to try to work with these borrowers to determine the best options for them, including an extension.”