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2018 Q4 2018 U.S. Economic and Credit Trends Outlook - FAQ

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2 available for sale has put upward pressure on home prices over the past few years but more recent data suggests that buyers as well as sellers are turning cautious. Until the uncertainty surrounding trade, interest rates and future economic growth subsides, price growth is likely to slow. Question: What did this state level chart look like during the financial crisis? Answer: The relative distribution of debt service ratios has remained relatively constant throughout the last 13 years of available data. That is the South always tends to have higher debt service ratios than the North. The absolute levels of the DSR have shifts and are closer to their lows today than prior to the Great Recession. That said, there are local areas which have experienced significant changes over this time including boom towns in the South and West. As oil prices fluctuated and the US experienced its shale boom, consumer credit has increased in certain areas. Question: How are you calculating wealth? Answer: We can calculate wealth either as a gross concept equal to the value of all real and financial assets held by households or, more commonly, as a net worth concept that subtracts out debt. Question: Are you including the debt for the property "owned" in that? Answer: See previous answer Question: Are Fintech lenders over leveraging the balance sheets of small business? How big of a risk to the economy is small business? Answer: This is a great question that is difficult to answer given inconsistency in the reporting of small business debt across the industry. In aggregate, fintech lending remains a small share of total outstanding credit suggesting the likelihood that it could cause a systemic problem is low. However, it may be more prevalent in certain industries or geographies which could create higher risk. It's clearly an important issue. Both Moody's and Equifax continue to explore datasets and systems that may be able to shed more insight. Question: As the recession looms on the horizon, from a lending point, what types of loans, or credits do you see being most volatile or subject to default in the next two to five years? Answer: Moody's Analytics views business loans and in particular "leveraged lending" loans to companies which are already in debt as posing the highest risk. Contractual provisions that protect lenders in the event a business defaults have also weakened over the past few years with the rise of so- called "covenant light" lending contracts. Given our projections for rising interest rates and a slowing economy, these companies will be at a higher risk of default. On the consumer side, we are concerned by some of the expanded subprime lending in auto and credit card -- particularly private label credit card -- portfolios. However, recent tightening of lending standards and improvements in delinquency rates should prevent the risk of these portfolios from spilling over. Question: Can the negative effect of high student loan affect younger consumers' ability to obtain

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