Banks’ New Dilemma: They Can’t Tell Who’s a Good Risk – Mish Talk
Banks steal blind
Businesses are not allowed to report to credit agencies that have mortgage, credit card, or auto loan forbearance plans.
So how do banks decide who is a good credit risk when they are Fly blind?
“Without specific information, their only option is to opt out of credit,” said Michael Abbott, North America banking manager at consulting firm Accenture PLC. “Banks don’t know who will pay and who won’t. It’s like flying blind in a credit storm.
Banks began to tighten their underwriting standards in March, when the first wave of coronavirus-related layoffs began.
In early April, 33% of banks that responded to the Federal Reserve’s survey of top loan officers said they had increased their minimum credit score requirements for credit cards in the previous three months, up from 14% in January. The banks surveyed have tightened lending standards for all categories of consumer loans tracked by the survey.
Loan origination declined, a result of both the tightening and lower consumer demand. About 79,000 personal loans were extended in the week ended May 10, up from 226,000 in the week ended March 22, according to Equifax Inc. Auto loan and lease issues fell to 266,000 from 390. 000 during the same period. General purpose credit card issuance totaled 483,000, up from 856,000. In 2019, weekly card issuance rarely fell below 1.2 million.
Some lenders pay phone data to see who is calling the unemployment office. Other lenders use natural disaster codes instead of late payment codes.
TransUnion is providing data to lenders to help them determine if consumers have been affected by the pandemic. This data can be used by lenders and insurers to help them better support impacted consumers. The data cannot be used to deny credit to a person.
Fair Isaac is rolling out a new index to inform lenders about the likelihood that the applicant will withstand financial hardship during the crisis.
The strictest lending standards in six years
At least 20 million unemployed people
Impossible to water down the grim unemployment claims
There are nearly 20 million jobless claims at the state level. That may not count up to an additional $ 10 million in federal payment protection programs.