Subprime consumer credit deterioration is starting
The bear case argued for subprime-exposed financial institutions is that rising delinquencies at the bottom of the credit stack will soon pressure earnings.
The argument
The guest pointed to rising delinquency rates in the FHA mortgage market as an early indicator of consumer stress. He argued that subprime-heavy portfolios will show deterioration first, reversing last year's trend of low loss rates and reserve releases.
The thesis, stress-tested
✓ What validates it
- ✓A visible jump in first-quarter loss and default rates reported by Synchrony Financial
- ✓An increase in provisions for credit losses among money center banks
▸ Risks discussed
- ▸Potential Fed rate cuts could ease pressure on lower-income borrowers
Hear it yourself
"I would anticipate the consumer credit is gonna start to deteriorate. We're already seeing it at the bottom of the stack. One of the things I watch very closely is the FHA market because those are low income borrowers with relatively low credit scores and they are already seeing a big jump in delinquency."
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