Americans Seem Able to Shoulder a Heavier Debt Load According to the Federal Reserve Bank of New York, household debt totaled $12.58 trillion at the end of Q4 2016, which was a 1.8% increase from Q3 2016 and a 3.8% increase from the end of Q4 2015, when the total was $12.12 trillion. The $12.58 trillion total is just $99 billion less than the peak of Q3 2008 (the highest since Q1 2004); and the end of 2008 was the beginning of the financial crisis and the resulting Recession. All 4 primary loan types – mortgage, auto, credit card and student – increased during Q4 2016; however, bankruptcies and foreclosures were at their lowest levels during the past 18 years, indicating that consumers are able to manage this debt load.

Willing Lenders’ Leverage Among the various financial institutions, mortgage companies, finance companies and credit card companies holding the paper on all these loans and mortgages, the total amount outstanding decreased -0.1% from the end of Q3 2015 to the end of Q3 2016. Outstanding receivables on real estate were almost totally responsible for the decrease, with a total of $106.3 billion outstanding at the end of Q3 2016, an 18.4% decrease. Outstanding receivables on business loans decreased a slight 0.1% at the end of Q3 2016, to $414.7 billion, at an annual rate, and 2.6% less than the total outstanding at the end of Q3 2015, or $426.3 billion.

Years of Living with a Mortgage According to data from the US Consumer Financial Protection Bureau, 898,355 new mortgage loans were originated during November 2016, or a 69.65% Y-O-Y increase, with a total value of $214.7 billion, or a 33.57% Y-O-Y increase. As of the end of Q4 2016, the mortgage delinquency rate for loans, or those at least one payment past due, but not in foreclosure, was 4.8%, which was 28 basis points more than the end of Q3 2016, and just 3 basis points more than the end of Q4 2015. During January 2017, single-family housing starts increased 6.2%, compared to January 2016, and the 30-year fixed mortgage rate was 4.15%, as of February 16, 2017, compared to 3.65% during the same week of February 2016.

Increasing Household Formations Would Benefit Mortgage Market The Mortgage Bankers Association forecasts an additional 15.9 million households in the US by 2024. Households of Americans 60+ will increase 12.9 million and those 45 years of age and younger, 5.1 million; while those 45–59 will decrease 2.1 million. If the 2024 home ownership rate is the same as 2014, which is below the long-term average, then there will be 10.3 million more homeowner households; however, if the rate is the same as the long-term average, then there will be 12.7 million. At the long-term home ownership average, there will be 16% more homeowners by 2024, with 7.3 million additional minority owner households and 5.4 million non-Hispanic Caucasian American owner households.

Record Auto Sales Result in Larger Auto Loan Delinquency Rate With light vehicle sales setting new records during each of the past few years (and on-target to do the same for 2017), the outstanding amount for all motor vehicle loans reached $1.112 trillion at the end of 2016, a 7.1% increase from 2015. This has created some concern in the auto loan market because when more cars are purchased more consumers with subprime credit scores receive loans, which in turn has increased the severe delinquency rate from 1.24% during 2015 to 1.35% for 2016. Three of the primary auto lenders – banks, credit unions and captive lenders – typically lend to consumers with credit scores of 620+. The other three – independent, monoline auto and dealer finance companies – lend to consumers with subprime credit scores.

Careers Stifled by Student Loans According to the Federal Reserve Bank of New York’s Q4 2016 report on household debt and credit, student loan debt increased $78 billion from Q4 2015 to Q4 2016, to a total of $1.31 trillion, which is the 18th consecutive year of increases. Of the five primary debt categories in the report, student loans had the highest seriously delinquent rate, or at least 90 days past due, at 11.2%, compared to 3.3% for all five categories, and well ahead of the second-highest category, credit cards, at 7.1%. As might be expected, August is the month when student-loan originations peak, but interestingly, during August 2016, students, 30–44, had the highest origination value, or $3.78 billion, while the total value for students younger than 30 was $2.78 billion.

Advertising Strategies Although mortgage rates have been increasing into Q1 2017, banks, mortgage companies and other originators of mortgages (as well as refinancing and home-improvement lines of credit) should emphasize in their marketing how historically low mortgage rates are. Share the table at the bottom of page 2 of the Profiler with lenders, suggesting their advertising should be targeting Americans 60+ of all ethnicities and Hispanic Americans of all age groups, as these groups will be forming the most new, future households. Auto lenders could promote a down-payment, pre-saving program to consumers with subprime credit scores. For every $100 a consumer saves during the next 6 months towards a down payment, the lender reduces the interest rate by a fraction of a point.

New Media Strategies As a companion to the first marketing strategies on the previous slide, mortgage originators can create a social media post (and a video preferably) that compares the interest rates younger consumers’ grandparents and parents paid to today’s rates. Conduct a customer survey via an email campaign about their loan experience. Include a question about any tips they might have for others about how to make a loan more affordable or easier to manage, and then create social media posts from these tips. Ask customers/social media visitors to submit photo/video of the most unusual item or purpose for which they obtained a loan (classic car, uncommon home, an unusual business, etc.). Have everyone vote for the most unusual, with a prize to the winner.