In FICO’s quarterly survey of bank risk professionals, lenders said they are expecting an increase in the availability of car loans for consumers with damaged credit. The survey, conducted for FICO by the Professional Risk Managers’ International Association (PRMIA), also found that survey respondents expected delinquency rates on most types of consumer loans to remain flat or decline, indicating that consumers are regaining their credit health. The sole exception to this outlook was student loans, with most respondents expecting delinquencies to increase.
Auto financing expected to get easier
When asked about lending to borrowers with damaged credit — often referred to as subprime borrowers — more than 50 percent of respondents expected the auto sector to see the largest increase in 2012, while 38 percent expected the largest increase to be in credit cards, and 12 percent expected the largest increase to be in residential mortgages. When asked about overall subprime lending activity, 44 percent of respondents felt that such lending in 2012 would remain flat compared to 2011.
“We are clearly seeing a loosening of credit in the auto finance market, with lenders responding to increased consumer demand,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “This is good news for car dealers and it should help the auto sector continue its recovery. However, underwriting for other types of consumer lending, particularly mortgages, is still tight. Lenders aren’t yet ready to increase their exposure for the sake of growing their mortgage portfolios.”
State of consumer credit health: stable
When asked about their expectations over the next six months, the majority of respondents expected delinquency rates to remain flat or decrease for credit cards (69%), car loans (77%), mortgages (73%) and small business loans (72%). However, a majority of respondents (64%) expected delinquencies on student loans to increase. This is the third consecutive quarter that respondents have predicted an increase in student loan delinquencies.
“I see these results as quite positive, save for student lending,” said Jennings. “Last quarter we saw a sharp uptick in sentiment regarding consumer credit, with more respondents expecting things to improve than we had seen at any point in the previous two years. Now lenders are expecting things to at least stay the same, and quite possibly improve further. These results indicate that bankers believe consumer health has turned a corner.”
- A continuing trend reported in Q1, respondents feel optimistic that the level of delinquencies in the auto loan and credit card categories will stay about the same or decrease (read: cautious optimism for the future). This is a reversal of the sentiment seen in 2001.
- A majority (69.4%) of risk managers believe that approval criteria for common credit and loans will remain the same or become less stringent. A majority (50.7%) also look for the volume of credit or loan applications to increase.
- Over 9 quarters, expectations for the loosening of approval criteria for consumer credit (23.2% expect less stringent criteria) is tied for its all-time high point (22.6% in Q3 2012).
A detailed report of FICO’s quarterly survey results is available at http://www.prmia.org/PRMIA-News/FICO USConsumerCreditJuly2012.pdf. The survey included responses from 192 risk managers at banks throughout the U.S. in June 2012. FICO and PRMIA extend a special thanks to Columbia Business School’s Center for Decision Sciences for its assistance in analyzing the survey results.