It is the “golden age” of American consumer credit, according to this Voya portfolio manager

Americans still want to follow the Joneses.

This is one of the main lessons to be learned some 18 months after the start of the pandemic, as household debt rose 2.1% in the second quarter to a record $ 15 trillion, recording its highest ever quarterly increase in nearly eight years, according to the latest report from the Federal Reserve Bank of New York. .

Only now, armed with a raft of aid from Washington to offset the COVID crisis, many households are also on the strongest ground in two decades, said Dave Goodson of Voya, head of securitized credit.

“I think we are in a golden age of consumer credit,” Goodson said in a telephone interview. “I haven’t seen him so strong in my career.”

Goodson manages the Voya Securitized Credit Fund VCFIX,
-0.10%,
and has been with the Investment Manager for 19 years, focusing primarily on Asset Backed and Mortgage Backed Securities. He made his debut 25 years ago as vice president of the asset-backed financial group of Wachovia Securities.

“When you think of credit risk,” Goodson said, “there are two things we care about. You must be prepared to pay off your debts. But you also have to have the capacity – the capacity part is clear. “

Voya’s consumer credit fund was up around 3.5% year-on-year on Friday, while the iShares MBS ETF MBB,
-0.05%,
which tracks agency mortgages, fell around 0.5% and the First Trust TCW Securitized Plus ETF DEED,
-0.09%
was up about 2.1% for the same stretch, according to FactSet.

For equity investors, the Consumer Discretionary Select Sector SPDR ETF XLY,
-0.35%
was up 15.5% year-over-year on Friday, versus the SPX of the S&P 500 Index,
-0.91%
18% increase.

What the numbers show

Fears emerged at the start of the pandemic that the United States could face another housing crisis as millions of people were suddenly put out of work as COVID restrictions took hold.

But with trillions of dollars in federal pandemic assistance, recent data from the US Census Bureau showed that fewer people in the United States lived in poverty last year, even though household incomes have fallen. fall.

Importantly, Fed data also showed that less than 3% of outstanding second-quarter consumer debt was at some stage of delinquency, down 2% from levels before the pandemic.

It comes as the protracted affordability crisis in the United States has changed little for tenants, with temporary moratoria on evictions expiring this summer and rents rising across the country. But the worst-case scenario, at least for many homeowners, now seems less likely.

This week, the number of borrowers in COVID-19 forbearance programs fell to 1.6 million for the first time since the pandemic, representing about 3% of U.S. home loans, according to Black Knight.

Even with no end to the pandemic in sight, consumers have continued to open their wallets, despite the cost of living which has soared this year at its highest rate in decades. Retail spending in August rose, despite gloomy consumer attitudes as the delta variant of the coronavirus filled hospitals in several states with unvaccinated.

Finally, the personal savings rate in the United States fell from its decades-long high of 33.8% in April 2020, mainly because households cut the first two rounds of out-of-pocket payments in the event of a pandemic, but the disposable income savings rate was still almost a decade higher. 9.6% in July, the most recent month reported.

Departure from the past

It’s a radically different backdrop for households than 13 years ago, when botched credit standards, unbalanced leverage and soaring house prices sparked the 2008 global financial crisis.

In its wake, millions of people in the United States ended up losing homes to foreclosure, and it took several years for consumer credit to really come back.

“From where I was sitting during the 2008 global financial crisis, I think some key lessons have been learned,” said Tricia Hazelwood, international head of securitized products at MUFG, a seasoned industry banker.

“One is that the longer it takes to recover, it is much worse and taxing the market than launching stimulus quickly and stepping up to protect the economy,” she said. at MarketWatch.

This time around, consumer borrowing quickly picked up, as did the issuance of asset-backed bonds or securities linked to auto loans, credit cards, student loans and other forms of debt.

Emissions have already reached $ 190 billion this year, a jump of almost 50% from the same period of 2020, but also an increase of 7.5% from the same period of 2019, before the pandemic. does hit, according to data from BofA Global.

“From my point of view, the ramifications of not doing it are much worse than doing it,” Hazelwood said of reviving government in a crisis.

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