Lenders Expect Delinquencies to Drop, Credit to Expand
Thursday, April 05, 2012
There is growing optimism among the lending community, which bodes well for would-be borrowers. FICO’s quarterly survey of bank risk professionals revealed a gradual reversal in the sentiment of U.S. lenders, as expectations for loan repayments and credit availability were more upbeat in the first quarter of 2012 than in the previous quarter. The survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), found fewer lenders expecting a rise in delinquencies on home loans, car loans, and small business loans than at any time since FICO launched its survey in early 2010.
In the latest survey, the number of respondents expecting mortgage delinquencies to rise during the next six months was 12 percentage points lower than last quarter – dropping from 47 to 35 percent. The survey found 28 percent of respondents expected delinquencies on small business loans to increase, which is 11 percentage points lower than last quarter. And 20 percent of respondents expected delinquencies on car loans to increase, 13 percentage points lower than last quarter.
With regard to credit cards, 32 percent of respondents expected delinquencies to increase. That is an improvement of seven percentage points over last quarter and it is the lowest figure since the second quarter of 2011.
FICO analysts attribute the increase in positive expectations to the modest improvement in unemployment rates. Barring any unforeseen bumps in the near future, loan delinquencies are expected to continue declining.
One area that remains a cause for concern, however, is student lending, with 51 percent of respondents expecting delinquencies to rise. That is 16 percentage points lower than last quarter, but it is still the second-highest level recorded since FICO initiated its survey.
According to the survey, while the credit gap appears to be closing in most areas, there is still concern regarding housing—56 percent of respondents believed credit supply would not meet demand for residential mortgages.