from Liberty Street Economics

— this post authored by Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Total household debt increased by $116 billion to reach $12.96 trillion in the third quarter of 2017, according to the latest Quarterly Report on Household Debt and Credit released today by the New York Fed’s Center for Microeconomic Data. Household debt has been growing since mid-2013, boosted in part by steady growth in auto loan balances, which have grown for twenty-six consecutive quarters thanks to record-high levels of newly originated loans.

Although new vehicle sales had begun to slump over the summer after several strong years of growth, September and October saw a rebound in sales, ending with over 18 million vehicles sold (seasonally adjusted at an annualized rate), and auto loan originations in the third quarter were commensurate with these numbers. In this post, we revisit the state of auto lending and auto loan performance, using the New York Fed Consumer Credit Panel which is based on Equifax credit data.

Originations

We reported one year ago that amid high levels of originations to subprime borrowers, subprime balances had been growing quickly, and these trends have mostly continued. We have noted in an earlier blog post that one feature of our data set is that it enables us to infer whether auto loans were made by a bank or credit union, or by an auto finance company (typically made through a car manufacturer or dealer using Equifax’s lender classification). Subprime auto lending has long been dominated by auto finance companies, which have historically originated and held more than 70 percent of subprime auto loans. The chart below, which depicts newly originated auto loan balances for the two lender categories by borrowers’ credit score at the time of origination, shows that these trends have continued. Lending to borrowers with lower credit scores has not increased as rapidly in the past year as it had in the preceding years, while lending to borrowers with higher credit scores has continued apace.