Credit quality became an increasing cause of concern among lenders and analysts after JPMorgan Chase CEO Jamie Dimon discussed his concern regarding recent bankruptcies of First Brands and Tricolor Holdings, a major provider of subprime auto loans.
“My antenna goes up when things like that happen,” Dimon told analysts during a call with analysts. “And I probably shouldn’t say this, but when you see one cockroach, there are probably more… Everyone should be forewarned on this.”
Adding to the concerns were credit issues reported by regional financial institutions Zions Bancorp and Western Alliance Bancorp. Zions had a $50 million chargeoff for the third quarter for “misrepresentations and defaults,” while Western Alliance said it was pursuing legal action against a borrower for fraud.
Moody’s on Friday said that the banking system, private credit markets are sound despite worries over bad loans. Marc Pinto, the agency’s Head of Global Private Credit, acknowledged in a CNBC interview that there are concerns over loose lending standards and some slack in the conditions that institutions attach to loans.
Ripples in the Pond?
National concerns over credit quality, even if currently concentrated in the auto sector, could have affects the mortgage market as well.
“When credit quality starts to tighten, the effects ripple far beyond underwriting desks It slows the pace of homebuying, shifts negotiating power, and forces both buyers and sellers to rethink what value and affordability really mean,” said Shilen Arrow, Feesback founder and CEO. “In markets like New York, where demand never fully disappears, tighter credit doesn’t erase activity; it just changes who can participate and how quickly deals move.”
Changing credit quality and market swings are certainly concerns, said Rafael DeLeon, SVP, Industry Engagement for Ncontracts and Director at Main Street Bank in Fairfax, Va. “Today’s risk environment is changing faster than ever, and every type of risk is connected. A credit issue, cyber incident, or regulatory shift can affect the whole organization overnight. The strongest institutions treat risk as a living, integrated discipline.”
“Mortgage delinquencies are rising driven by a combination of job losses, rising escrow costs (insurance rates rapidly increasing),” said Amy Pierce, Bank Strategic Solutions founder and President. “Many buyers stretched to purchase at the height of housing prices post-Covid anticipating an ability to refinance at a lower interest rate in the future. Now they are stretched to make their payments and have little or no savings for unexpected expenses.”
However, Pinto wasn’t as concerned. “When we dig deeper here and look to see if there’s a turn in the credit cycle, which is effectively what the market seems to be focusing on, we can find no evidence,” Pinto said. “Now that’s what we’re seeing today. That could always change. But if we look at the asset quality numbers that we’ve seen over the last several quarters, we’re seeing very little deterioration at all.” Arrow added: “Ultimately, credit tightening isn’t just a constraint; it’s a recalibration. It rewards efficiency, trust, and long-term relationships qualities that tend to endure well beyond any single credit cycle.” “Today’s risk environment is changing faster than ever, and every type of risk is connected. A credit issue, cyber incident, or regulatory shift can affect the whole organization overnight. The strongest institutions treat risk as a living, integrated discipline.”
