FICO’s Survey of Risk Managers – Cautiously Optimistic

FICO, the inventor of credit scores, recently hired Professional Risk Managers’ International Association (PRMIA) to conduct a survey of risk managers and other banking executives. This survey asked  the 200 responders their opinions of the economic recovery over the next six months. The responders were more optimistic in first quarter 2012 than in fourth quarter 2011. But according to FICO, the bankers were still cautious.  The plurality of respondents expected delinquencies to remain the same; more expected an increase in delinquencies than a decrease.

The responders were asked to look at each industry as a whole over the next six month, including their expectations regarding delinquencies, which were defined as 90 days late or worse.  The industries were: residential mortgages, home equity lines, credit cards, auto loan, small businesses and student loans. The expectation choices were: increase significantly, increase somewhat, stay about the same, decrease somewhat, and decrease significantly.  The responses by industry are listed below:

Residential Mortgages

35 percent of the responders in first quarter 2012 expected the level of residential mortgage to increase in the next six months, compared to 47 percent in fourth quarter 2011.

26 percent expected mortgage delinquencies to decrease, compared to 13 percent in fourth quarter 2011.

39 expected it to stay about the same, compared to 40 percent in the prior quarter.

Home Equity Lines

23 percent of the responders in first quarter 2012 expected the level of home equity line delinquencies to decrease in the next six months, compared to 18 percent in fourth quarter 2011.

33 percent expected delinquencies to increase.

44 percent expected them to stay about the same.

Credit cards

32 percent of responders in first quarter 2011 expected credit card delinquencies to increase, compared to 39 percent in fourth quarter 2011.

27 percent expected them to decrease.

41 percent expected delinquencies to remain the same.

Auto Loans

20 percent of responders in first quarter 2012 expected auto delinquencies to increase in first quarter 2012, compared to 33 percent in fourth quarter 2011.

30 percent expected delinquencies to decrease.

50 percent expected them to stay about the same.

Small Business Loans

28 percent of responders in first quarter 2011 expected delinquencies on small business loans to increase, compared to 39 percent in fourth quarter 2011.

30 percent expected delinquencies to decrease.

42 percent expected them to stay about the same.

Student loans

The main area of concern was student loans, 51 percent of the responders expected student loan delinquencies to rise in the next six months.  This was a 67 percent decrease from fourth quarter 2011, but this was still the second highest level of response in the eight quarters since the survey was conducted. Only 12 percent expected student loans to decrease and 37 percent expected them to stay about the same.

“As unemployment falls, even modestly, and four years of deleveraging begin to pay dividends, bankers are allowing themselves to feel some optimism,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Of course, we’re not out of the woods. Foreclosures continue to put pressure on home prices, and jobs are coming back slowly. But we seem to be headed in the right direction. If we can avoid major bumps in the road, such as a spillover effect from the Eurozone crisis, we should continue to see delinquencies drop.”

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: Auto Loans, Bankruptcy, Credit Cards, Credit Report, Credit Score, Money & Identity

This post was written by John Ulzheimer