The Federal Reserve Bank will soon report the Consumer Loan Charge-off Rate (CLCOR) for the third quarter of 2020. According to the data published on Aug 24th 2020, the total seasonally adjusted CLCOR figure for the 2020Q2 was 2.31%. The most recent prediction for the upcoming report for 2020Q3 is 2.42%.

Here are the predictions for the next four coming quarters:

In our last Charge-off post back in August, we reviewed that COVID-19 had minimal impact on charge-off rates. So far, the data does not suggest any drastic change for the upcoming quarters. Several notes in this regard:

  • The stimulus checks and forbearance programs seem to have worked so far. The main question is whether US consumers could survive the financial hardship once the government programs are expired. For instance, delinquency rate on single family residential mortgages hit its bottom for the first time back in 2019Q4 since the 2008 financial crisis. 
  • Also, the jump of delinquency rate in the commercial real estate loans is even higher than that for residential loans. What happens when the delinquency rates keep rising, subsequently resulting in higher charge-offs? Thus far, it appears as if there has been no adverse reaction to the initial economic shock of COVID-19. Of course, we will monitor the situation closely to see if there are any aftershocks once the benefits of the initial relief programs fade.

The following figure shows the historical trend of CLCOR and the forecast values obtained from LM (Linear Model) and ECM (Error Correction Model) for the next four quarters. The ECM is our model of choice for this task.

Below, you can see the performance of our predictions against the actual values since 2015Q4 that we started predicting CLCOR on a regular basis. 

Finally, here is a screenshot of our Tableau Viz on Charge-Off Predictions. To review the actual interactive viz, CLICK HERE