Berkeley Research Group’s Neil Librock, a former executive vice president at Wells Fargo (WFC), notes the danger signs ahead.
“Lenders seem to lack ‘institutional memory’ – high-risk consumer lending was touted as ‘predictable,’ based on supposedly sophisticated analytic tools, only a decade ago. Subsequent events proved that wrong. I expect history will repeat itself,” Librock said.
However, he notes that “there were some serious lessons learned” in the mortgage market from the crash. It doesn’t look like the aggressive non-prime expansion of the early 2000’s is being repeated now.”
At Wells Fargo, Librock was responsible for a $400-billion consumer loan portfolio, and directed the due diligence review and integration of loans from Wells Fargo’s Wachovia Bank acquisition.
Librock said he expects a rash of inquiry and possible legislation or regulation when interest rates rise significantly, pointing to how the Consumer Financial Protection Bureau recently turned its sights to payday lenders.
“One of the big questions lenders must ask is that while using one metric, credit score, is a convenient way to describe borrowers, it is overly simplistic and does not fully address the real issue – can the customers afford the new debt with high interest rates?” he said.