FICO’s Banker Survey Predicts Delinquencies to Increase

FICO conducts a quarterly survey of U.S. bank risk professionals and the latest report covers fourth quarter 2011.  FICO conducted it with Professional Risk Managers’ International Association (PRMIA) and the Columbia Business School. The survey asked risk managers about consumer credit supply and demand, credit standards, delinquencies and other issues related to consumer credit.

The bankers expected delinquencies on student loans, mortgage and credit cards to increase and the global economy will put more pressure on the U.S. economy. Student loan delinquencies were the top concern and 67 percent expected them to continue to rise; which was a 40 percent increase from last quarter.   Student loan debt has surpassed credit card debt.  The next category, mortgage delinquencies, trailed behind at 47 percent predicting that delinquencies would continue to increase.

In fourth quarter 2011, bankers felt strongly that approval criteria for credit and loans will not become less stringent over the next six months. In first quarter 2011, the responders were more optimistic about delinquencies on mortgages, home equity loans, credit cards and auto loans. They became less optimistic through each quarter of 2011.

Consumer credit by industry

67 percent expected student loan delinquencies to rise; this was a 40 percent increase or 19 percentage points from the last quarter. Only 8.5 percent expected them to decline.

47 percent expected mortgage delinquencies to rise; 13 percent expected them to decrease. This is more pessimistic than last quarter.

45 percent expected credit card delinquencies to rise; 21 percent expected them to decrease. This is more pessimistic than last quarter, because of holiday purchases. Even more (54 percent) expected credit card balances to increase. This is due to higher spending by some and others who couldn’t pay down their balances.

33 percent expected an increase in auto loan delinquencies; 22 percent expected them to decrease; and 45 expected no change.

Consumer credit in general

56 percent predicted no change in consumer credit interest rates.

50 percent predicted no change in approval criteria for credit and loan products.

46 percent felt the approval rate for credit or loan application and the amount of credit extend by lenders would remain the same.

41 percent predicted consumers will request more credit over the next six months; 46 percent predicted no change in requests.

25 percent felt that consumer credit extended by lenders will increase.More ways to share…

20 percent predicted a decrease in loan applications.

The big concern is student loan debt which continues to increase. The bankers don’t see that underwriting criteria will loosen or that delinquencies will decline. More than half think the banking sector is more prepared financially than in 2008.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Report, Credit Score, Debt, Getting Credit, Money & Identity

This post was written by John Ulzheimer