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Understanding Co-Borrower Performance
Charlie Wise
Vice President, International Research and Consulting
| 2© 2018 Trans Union of Canada, Inc. All Rights Reserved | 2
Notice
IN NO EVENT SHALL ANY STATEMENTS CONTAINED IN THIS DOCUMENT BE DEEMED LEGAL ADVICE OR LEGAL
OPINION. IN ADDITION, NOTHING CONTAINED IN THIS DOCUMENT SHALL BE DEEMED TO CONSTITUTE A
WARRANTY OR OTHER LEGALLY BINDING REPRESENTATION OR STATEMENT ON THE PART OF TRANSUNION,
IMPOSE ANY LEGAL OBLIGATION OR DUTY ON TRANSUNION, OR OTHERWISE BE DEEMED TO REVISE, AMEND,
OR OTHERWISE MODIFY ANY AGREEMENT BETWEEN TRANSUNION AND THE RECIPIENT OF THIS DOCUMENT
(“RECIPIENT”) INCLUDING, IF APPLICABLE, BUT NOT LIMITED TO ANY AGREEMENT UNDER WHICH TRANSUNION
HAS DEVELOPED AND/OR DELIVERED THIS DOCUMENT.
COMPLIANCE WITH ALL LAWS IS SOLELY THE RESPONSIBILITY OF THE RECIPIENT. THE
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TRANS UNION OF CANADA, INC.
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| 3© 2018 Trans Union of Canada, Inc. All Rights Reserved | 3
• What is the landscape of joint loans?
• How valuable are joint loans?
• How risky is a joint loan compared to an individual loan?
• What is our recommended best practice for assessing co-borrower risk?
In this session, we’ll review:
Why care about co-borrower performance?
Because you care about increasing opportunities while
reducing risk.
| 6© 2018 Trans Union of Canada, Inc. All Rights Reserved | 6
• Should you take the lowest credit score?
• How about the highest credit score?
• Maybe it’s better to average the applicants’ credit scores?
Different lenders may evaluate the risk of joint
borrower credit facilities in different ways
TransUnion set out to establish a best practice when
assessing the risk of joint applications
What is the landscape of joint loans?
| 8© 2018 Trans Union of Canada, Inc. All Rights Reserved | 8
The type of borrower will depend on the product,
and each joint situation will have unique circumstances
Mortgage
Co-borrower Contractually
liable
GuarantorLiable only if the primary defaults
Personal loans
Co-borrower Contractually
liable
GuarantorLiable only if the primary defaults
Auto and Line of Credit
Co-borrower Contractually
liable
Credit card
Co-borrower Contractually
liable
Authorized user No joint contractual liability is present
| 9© 2018 Trans Union of Canada, Inc. All Rights Reserved | 9
Joint loan originations represent a significant portion
of annual originations to lenders
Source: TransUnion consumer credit database
Annual joint loan originations for key products
# o
f o
rig
ina
tio
ns
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2013 2014 2015 2016 2017
Auto Installment Line of Credit Mortgage
Joint loans as a %
of all originations26% 23%24%25% 24%
How valuable are joint loans?
| 11© 2018 Trans Union of Canada, Inc. All Rights Reserved | 11
Over half of mortgage originations are from
joint borrowers
Source: TransUnion consumer credit database
Distribution of mortgage originations by borrower type
43% 41% 41% 41% 40%
57% 59% 59% 59% 60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017
Ori
gin
ati
on
dis
trib
uti
on
Individual Joint borrower
| 12© 2018 Trans Union of Canada, Inc. All Rights Reserved | 12
Origination amounts for joint loans continue to climb
Source: TransUnion consumer credit database
Average mortgage origination amount by borrower type
$-
$50
$100
$150
$200
$250
$300
2013 2014 2015 2016 2017
Avera
ge o
rig
inati
on
am
ou
nt
($K
) 12%
9%
Individual Joint borrower
| 13© 2018 Trans Union of Canada, Inc. All Rights Reserved | 13
Joint mortgages are valuable; total market value is on
average 60% higher compared to individual loans
Source: TransUnion consumer credit database
Total market value of mortgages at origination by borrower type
Mark
et
valu
e (
$B
)
$
$20
$40
$60
$80
$100
$120
$140
$160
$180
2013 2014 2015 2016 2017
Individual Joint borrower
| 14© 2018 Trans Union of Canada, Inc. All Rights Reserved | 14
The distribution of auto originations across borrower
types is relatively stable
Source: TransUnion consumer credit database
Distribution of auto originations by borrower type
Ori
gin
ati
on
dis
trib
uti
on
82% 84% 83% 83% 84%
18% 16% 17% 17% 16%
0%
20%
40%
60%
80%
100%
2013 2014 2015 2016 2017
Individual Joint borrower
| 15© 2018 Trans Union of Canada, Inc. All Rights Reserved | 15
Similar to mortgage, joint auto accounts are bigger
Source: TransUnion consumer credit database
Average auto origination amount by borrower type
$0
$5
$10
$15
$20
$25
$30
$35
2013 2014 2015 2016 2017
Ave
rag
e o
rig
ina
tio
n a
mo
un
t ($
K)
8%12%
Individual Joint borrower
| 16© 2018 Trans Union of Canada, Inc. All Rights Reserved | 16
Like other products, the co-borrower distribution of
line of credit originations has been stable
Source: TransUnion consumer credit database
Distribution of line of credit originations by borrower type
70% 69% 70% 71% 71%
30% 31% 30% 29% 29%
0%
20%
40%
60%
80%
100%
2013 2014 2015 2016 2017
Ori
gin
ati
on
dis
trib
uti
on
Individual Joint borrower
| 17© 2018 Trans Union of Canada, Inc. All Rights Reserved | 17
Further proving joint borrower value, the gap in
origination amounts is significantly larger
Average origination amount of lines of credit
$-
$20
$40
$60
$80
$100
$120
2013 2014 2015 2016 2017
Avera
ge o
rig
inati
on
am
ou
nt
($K
)
Individual Joint borrower
147%
225%
Source: TransUnion consumer credit database
| 18© 2018 Trans Union of Canada, Inc. All Rights Reserved | 18
• The landscape of joint lending has been growing and represents
significant opportunity for lenders
• There is clear potential economic value to joint loans compared to
individual loans
• Incorrect assessment of joint borrowers can lead to incorrect pricing
or missed opportunity
In summary:
Comparing joint borrower risk
Which is riskier, an individual or a joint application?
| 20© 2018 Trans Union of Canada, Inc. All Rights Reserved | 20
We studied 6.9 MM consumers who opened an
auto, mortgage, personal loan or LOC in 2015
t + 24 months
Metrics measured at t:
Joint vs. individual
Joint application type
Consumer score(s)
Product type
t
Product origination
Metrics measured at t+24:
Delinquency rates of
originated products
| 21© 2018 Trans Union of Canada, Inc. All Rights Reserved | 21
For auto loans, co-borrowers tend to have slightly
higher risk compared to other borrower types
Auto originations by risk tier
14% 17%
22%26%
14%
14%
15%
14%
35%28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Individual Co-borrower
% o
f to
tal
ori
gin
ati
on
s
CreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
29%
Source: TransUnion consumer credit database
| 22© 2018 Trans Union of Canada, Inc. All Rights Reserved | 22
For lines of credit, the risk distribution is skewed
to lower risk for joint loans
Line of credit origination by risk tier
CreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
2% 2%
21% 16%
23%
17%
22%
20%
32%45%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Individual Co-borrower
% o
f to
tal
ori
gin
ati
on
s
Source: TransUnion consumer credit database
| 23© 2018 Trans Union of Canada, Inc. All Rights Reserved | 23
3% 3%
20% 17%
19%17%
20%20%
36%43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Individual Co-borrower
% o
f to
tal
ori
gin
ati
on
s
CreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
Mortgage origination by risk tier
21%
21%
Similar to lines of credit, the risk distribution of
mortgages is skewed to lower risk for joint loans
Source: TransUnion consumer credit database
| 24© 2018 Trans Union of Canada, Inc. All Rights Reserved | 24
Joint performance cannot be predicted based upon
individual behavior alone
Subprime delinquency rate within 24 months – 60 or more days past due
Auto Line of Credit Mortgage
Deli
nq
uen
cy r
ate
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
CreditVision risk score: Subprime = 300-639Source: TransUnion consumer credit database
| 25© 2018 Trans Union of Canada, Inc. All Rights Reserved | 25
Even super prime consumers do not behave as expected
Super prime delinquency rate within 24 months – 60 or more days past due
Deli
nq
uen
cy r
ate
CreditVision risk score: Super prime = 800+
Auto Line of Credit Mortgage
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
Source: TransUnion consumer credit database
Co-borrower lending best practices
How should co-borrower risk be assessed?
| 27© 2018 Trans Union of Canada, Inc. All Rights Reserved | 27
We studied 6.9 million consumers who opened an
auto, installment line of credit or mortgage in 2015
t + 24 months
Metrics measured at t:
Joint vs. individual
Joint application type
Consumer score(s)
Product type
t
Product origination
Metrics measured at t+24:
Delinquency rates of
originated products
Delinquency mapping
Joint delinquency was
mapped to equivalent
individual observed
delinquency
| 28© 2018 Trans Union of Canada, Inc. All Rights Reserved | 28
500-530 531-560 561–590 591–639 640–670 671–700 701–719 720–759 760–799 800+
800+
760–799
720–759
701–719
671–700
640–670
591–639
561–590
531-560
500-530
We developed a co-borrower score equivalency
matrix for auto loans
Lowest co-borrower score
Hig
hest
co
-bo
rro
wer
sco
re
Source: TransUnion consumer credit databaseCreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
| 29© 2018 Trans Union of Canada, Inc. All Rights Reserved | 29
500-530 531-560 561–590 591–639 640–670 671–700 701–719 720–759 760–799 800+
800+
760–799
720–759
701–719
671–700
640–670
591–639
561–590
531-560
500-530
Case one: What will the auto co-borrower
scorecard predict for two near prime borrowers?
Lowest co-borrower score: 690
Hig
he
st
co
-bo
rro
we
r s
co
re:
71
0
Source: TransUnion consumer credit database
CreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
Observed bad rate for joint = 1.2%
Mapped equivalent score = 730
Prime
| 30© 2018 Trans Union of Canada, Inc. All Rights Reserved | 30
Scenario 1
Decision and price using highest
score
Joint highest score = 710
Expected bad rate at individual
score = 1.8%
Risk consumers walking from deal
How might this co-borrower situation typically be
handled?
Scenario 2
Decision and price using lowest
score
Joint lowest score = 690
Expected bad rate at individual
score = 2.9%
Might not make risk cut-off
Scenario 3
Decision and price using average
score
Joint average score = 700
Expected bad rate at individual
score = 2.3%
Incorrect loan amount
Source: TransUnion consumer credit database
| 31© 2018 Trans Union of Canada, Inc. All Rights Reserved | 31
500-530 531-560 561–590 591–639 640–670 671–700 701–719 720–759 760–799 800+
800+
760–799
720–759
701–719
671–700
640–670
591–639
561–590
531-560
500-530
Case two: What will the auto co-borrower
scorecard predict for a subprime and a prime?
Lowest co-borrower score: 590
Hig
he
st
co
-bo
rro
we
r s
co
re:
73
0
Source: TransUnion consumer credit database
CreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
Observed bad rate for joint = 1.6%
Mapped equivalent score = 715
Near
Prime
| 32© 2018 Trans Union of Canada, Inc. All Rights Reserved | 32
Scenario 1
Decision and price using highest
score
Joint highest score = 730
Expected bad rate at individual
score = 1.2%
Pricing might be off for relative risk
How might this co-borrower situation typically be
handled?
Source: TransUnion consumer credit database
Scenario 2
Decision and price using lowest
score
Joint lowest score = 590
Expected bad rate at individual
score = 18.5%
Consumers miss risk cut-off
Scenario 3
Decision and price using average
score
Joint average score = 660
Expected bad rate at individual
score = 5.7%
Incorrect loan amount
| 33© 2018 Trans Union of Canada, Inc. All Rights Reserved | 33
We performed the same exercise for mortgages with
similar results
Lowest co-borrower score
Hig
hest
co
-bo
rro
wer
sco
re
Source: TransUnion consumer credit databaseCreditVision risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759;
Prime plus = 760-799; Super prime = 800+
500-530 531-560 561–590 591–639 640–670 671–700 701–719 720–759 760–799 800+
800+
760–799
720–759
701–719
671–700
640–670
591–639
561–590
531-560
500-530
| 34© 2018 Trans Union of Canada, Inc. All Rights Reserved | 34
• To maximize opportunity and minimize risk, co-borrowers should not be
averaged – their joint performance should be benchmarked against
individual borrower performance
• TransUnion’s recommended best practice differs based upon product
type, and of course will differ across individual portfolios
• The market for joint borrowers is large and provides significant dollar
value to lenders
• TransUnion’s recommended best practice provides a quantitatively
sound and consistent method to capture the joint loan opportunity
In conclusion:
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