Banks are backing off from new depositswhile consumers are still interested
Mirroring the broad decline in new loan acquisitions, HELOC mail volume was downsubstantially in April
Many lenders are boosting their efforts on income verification
Consumers are gradually becoming more confident in their ability to pay bills
Are the ABS markets opening up?
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Banks Lose Interest in Deposits, While Consumers Don’t
Pandemic uncertainty, low rates, and declining new loan volume have led to a pullback in new customer marketing for checking and savings products
Mail volume soliciting new checking accounts dropped 75% in April
While consumerinterest, as measured by online search volume, has risen since late March
Online savings rates continue their decline, with current rates 35-70bps lower than January rates
Home Equity Line Acquisition Efforts Also Drop
Following the trend of other loan segments, AprilHELOC mail volume was down over 60% from March
Figure, which has dominated the HELOC direct mail channel for the past year, saw a sharp drop in April mail volume, while other mailers also declined
Conversely, consumer demand for HELOC has remained fairly consistent
Lenders Focus on Employment and Income Verification
42.5 million unemployment claims in the past 80 days have made credit underwriting a challenge
Lenders are reacting by increasing employment and income verification despite its inefficiency
Most are targeting verification efforts on the 10-15% of applicants who might be of higher risk of having lost their jobs:
Self-employed
Hourly workers
Those in high risk industries such as hospitality and travel
Prospects in geographies with higher unemployment, such as Nevada and areas of Florida
DDA activity for customers and automated tools such as Plaid for prospects are the preferred tools for looking at transaction data to support the presence of recent income
Consumers are Feeling Better About their Finances
Our research shows consumers are more optimistic about their personal finances than they were six weeks ago
Epic repeated a survey from mid-April regarding consumers’ ability to pay their bills
While there were no dramatic shifts in attitudes, there was a general positive shift in confidence in their personal financial situation, shown by a 12-point rise in those disagreeing that the pandemic had made it harder to pay their monthly bills
There has been much said about the fact that unemployment benefits and stimulus checks have helped consumers keep up with their bills, which is supported by 45% of respondents saying they are important
More “Green Shoots” – ABS Markets Opening?
In the past few months, we’ve noted the withdrawal of some capital markets-based lenders from the new customer acquisition market due to the “drying up” of the ABS markets
Recent weeks have seen some positive change in select categories:
Student Loan Refi – Signs of a return to functioning ABS markets - Navient and CommonBond are in market with deals, following SoFi’s late May closing of its first refi securitization since the pandemic hit
Depending on the sector, securitization markets are largely functioning, particularly those that would get TALF support (which some say is unnecessary at this point)
Card ABS is fine as it has a decades-long history from which to assess potential asset quality shocks
Personal loan is a lot better than it was, but still struggling – it’s not TALF-eligible, has a thinner investor base, and is not recession-tested, so investors are skittish – OneMain completed a securitization in early May, which is a positive datapoint, but we would note that OneMain is a much more established issuer than other non-banks in the industry
Going Forward
Anecdotally, the trend seems to have gradually shifted from “what can we stop doing” to “let’s plan to start again”
We expect to see a continued increase in new customer marketing across select product categories as the summer progresses
Thank you for reading.
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Jim Stewart www.epicresearch.net To read our previous newsletters,
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