CFPB Finds Credit Applications Have Mostly Recovered to Pre-Pandemic Levels
T
he Covid-19 pandemic wreaked havoc on so many levels and one of the areas most affected was the mortgage industry. According to a prepandemic report published by the CFPB in May 2020, the pandemic brought a substantial drop in credit applications. However, credit applications have since improved and recovered to match the pre-pandemic levels for all the credit types considered by May 2021. The new CFPB brief shows that consumer application for new mortgages, auto loans, and revolving credit cards has improved quite significantly. To explain this rise, CFPB notes that the prime and near-prime consumers are driving the recovery even as applications remain low from the borrowers with subprime
and deep subprime for all types of credit, and for the borrowers with superprime credit scores, applications are down for all types of credit except for the mortgages. Additionally, while we note a remarkable increase in credit applications, CFPB notes that the recovery has been different across types of credit. March 2020, immediately after the first cases of Covid-19 to be reported in the country, auto loan applications recovered most of their initial drop by late May 2020. However, through the fall of 2020, auto loan applications remained relatively sluggish but soon recovered to their usual levels by the beginning of 2021. Contrary to this growth, the credit applications stayed relatively low after their initial
decline. By the fall of 2020, credit applications were still 30 percent below the pre-pandemic levels. One year later, CFPB reports that credit card applications were back to their pre-pandemic levels. Still, after the initial decline in new mortgage applications, the application for new mortgages was above their usual levels in the pre-pandemic years and this continued through May 2021.
“While consumer credit applications have generally recovered to pre-pandemic levels in the aggregate, we see important differences across consumers,” says David Uejio, CFPB’s acting director. “Both borrowers with superprime and subprime credit scores are still not applying for credit as much as they were pre-pandemic.”
Summary of the key finding; • •
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Auto loans: applications saw a drop of 52 percent by the end of March 2020 and by January 2021, auto loan applications returned to their pre-pandemic levels Mortgage credit applications: by march 2020, the applications saw a slight decline and then surged. In fact, the applications have exceeded their usual, seasonally adjusted volume by almost 10 to 30 percent which is a true reflection of the unusually high activity in the mortgage market through the pandemic. For the revolving credit card debt, the inquiries took a long time to recover from the initial decline in March 2020 but later recovered by March 2021 when the levels returned to their normal levels. The consumers with deep subprime credit scores recorded the biggest declines in auto loan inquiries compared to the previous years. This was closely followed by subprime credit score. These consumers also showed declines in new mortgage and revolving credit card inquiries.
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THE POWER IS NOW MAGAZINE | SEPTEMBER 2021
