U.S. Unsecured Consumer Loan Securitizations Gain Traction

Morningstar DBRS published a commentary about U.S. consumer loan securitizations gaining traction.

Key Highlights:
-- Over the past several years, unsecured consumer loan securitization volumes have grown, with a record $13.4 billion issued in 2024. Last year, unsecured consumer loan issuance, inclusive of branch base and marketplace loans, contributed roughly 4% of the overall $319 billion of U.S. asset-backed securities volume.
-- The increase in demand for unsecured consumer lending is not surprising on the heels of the high inflationary environment during the pandemic, combined with strong demand for not only big-ticket items but also for experience-based purchases like travel.
-- Across unsecured consumer loan securitizations we rate, performance has seen some deterioration in 2022 through 2024 vintages. Although on a year-over-year basis there has been some improvement due to some credit tightening and positive shifts in collateral composition, we expect performance to remain weak in 2025 due to the continued economic stresses, inclusive of increased cost of living, which is compressing obligors' available cash flow.

"We expect the unsecured consumer loan market to continue to expand in 2025 due to continued strength in the labor market and robust consumer demand for credit (both purchases and debt consolidation) despite the uncertainty about the application of state usury laws and the export of home-state interest rate rules," said Stephanie Chin, Senior Vice President, Structured Finance Research. "This uncertainty has diminished over time because of regulatory guidance provided by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation," said Fred Rosenberg, Senior Vice President, U.S. Structured Finance Ratings.