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Ed Refi, Poised for Growth! | Epic Research

Written by Jim Stewart | Sep 11, 2021, 4:00:00 AM

Three Things We’re Hearing

  • Activity in the HELOC market
  • Card mail volume continues to climb
  • Ed refi poised for growth

A three-minute read

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Activity in the HELOC Market

  • As noted in a previous Epic Report, home equity lines of credit (HELOCs) fell out of favor following the 2008-2009 housing crisis as both consumers and lenders were scarred by the negative effects, resulting in current HELOC balances stalling around half of the pre-recession level
  • We have seen an increase in recent market activity from both consumers and lenders, fueled by increased home values and banks’ desires for organic growth
  • We recently surveyed consumers who acquired a new HELOC about their preferences and experiences

Card Mail Volume Continues to Rise

  • Overall credit card mail volume has fully recovered and is now at 2019 levels
  • Capital One has taken a firm lead as the top card mailer in the past six months, with 12-month rolling volume 75% higher than number two Citi
  • Online search traffic for “travel credit cards” fell dramatically in April 2020, however consumer interest has steadily tracked upward since spring 2021
  • While mail volume for credit cards bounced back and volume for education lending never really dropped, mail volumes for personal loans, deposit products, and HELOCs are still well below pre-pandemic levels

Ed Refi Poised for Growth

  • With student loan payment deferrals resulting from the CARES Act and federal loan payment holiday, consumers are enjoying extra money in their pockets and are perhaps a bit less likely to refinance student loans
  • Lenders are responding to this inertia with an avalanche of new perks and promises to try to grab market share before CARES expires in January
  • One result has been a steady decrease in the “lowest advertised rates” by many issuers
  • Additionally, issuers are offering:
  • payment holidays of their own, such as SoFi’s “no payments until February”, and
  • cash-like incentives, such as Citizens’ $500 Amazon gift card, SoFi’s $350 cash offer, and Splash’s $25 Amazon gift card offer just for checking your rate
  • With the rate wars at an all-time high, SoFi is offering a rate match coupled with a $100 incentive
  • Despite the CARES Act implications, direct mail is still highly competitive with lenders sending 75MM pieces through July 2021, down 30% vs. 2020, driven by reduced volume from SoFi; meanwhile, other large lenders have continued to invest in incremental volume
  • While remaining a niche product, education refinance lending is less competitive than most and, over the past several years, has shown a continuing high level of asset quality

Quick Takes

  • Affirm’s stock shot up on the news, however the Amazon payment space is going to be busy with its Chase co-brand card, Synchrony private label card, gift cards, direct debit, pay-with-points, post-payment installment options from Citi and others, and other cards
  • While benefitting from the “network effect”, with millions of additional users added to their platform, Amazon is a notoriously aggressive negotiator and Affirm’s margins will likely be thinner than is typical
  • Some analysts predict that BNPL will ultimately settle at around 3% market share in the US
  • Barclays announced its purchase of the $3.8 billion Gap card portfolio from Synchrony, significantly increasing the size of its $20-something billion portfolio and strengthening its already strong position in the co-brand market
  • As consumers have paid down debt over the past 16 months, their credit scores have improved accordingly – FICO reported that the average FICO score has reached 716, up 8 points in just a year, with those in the subprime 550-599 range up 20 points

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Jim Stewart
www.epicresearch.net

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