A subset of consumers, primarily subprime borrowers who tend to be lower-income households, has driven most of the increase in delinquencies.
By Christian Floro, CFA, Market Strategist
The conflict in the Middle East has triggered a renewed surge in gasoline prices, adding pressure to U.S. consumers already facing the highest credit delinquency rates since the Global Financial Crisis.
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Delinquencies are concentrated among subprime, lower-income borrowers, while prime borrowers have seen only marginal deterioration in credit performance.
Higher subordination, wider spread cushions, cash-flow triggers, and tighter underwriting standards provide enhanced protection for senior debt holders compared to pre-GFC conditions.
Banks' direct exposure is reduced due to securitization, with lower leverage, higher capital ratios, and robust loan-loss reserves, limiting transmission of credit stress.
