Bankers expect the number of mortgage foreclosures to accelerate over the next five years, according to a survey conducted for FICO by the Professional Risk Managers' International Association. The survey, which polled 188 risk managers at banks throughout the U.S., showed that bankers expect delinquencies on consumer loans to rise, underwriting standards to become more strict and the housing sector to continue to struggle far into the future.
"Housing has been an enormous drag on the economy for over three years as U.S. households lost trillions of dollars in equity," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation. This puts the devastation of the housing crash into perspective."
Bankers in the survey also expressed concern about consumer credit health beyond mortgages. Over the next six months, a large number of survey respondents indicated they expect the number of people defaulting on car and student loans and credit cards to rise.
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By a margin of 36 percent to 17 percent, survey respondents expected delinquencies on small business loans to increase rather than decrease. And while 57 percent of bankers surveyed expected the amount of credit requested by small businesses to increase over the next six months, only 34 percent expected the amount of credit that is actually extended to small business to increase. This "credit gap" between supply and demand has been persistent over the past six quarters, according to the report.
"Small businesses have traditionally been providers of much-needed jobs during economic recoveries," said Jennings. "But the tight credit conditions facing small businesses today make it difficult for them to invest and expand. Rather than something to be counted on, the notion of small-business job creation seems, for the moment at least, aspirational."
Fifty percent of survey respondents said they believe credit card balances will increase over the next six months. The increases are likely to be driven by higher spending among some consumers and smaller monthly payments from others. However, in a sign that bankers aren't optimistic about the ability of consumers to power the economic recovery, 64 percent of respondents expected credit card usage to remain below pre-recession levels for at least five more years.
The Professional Risk Managers' International Association is a nonprofit, member-led association dedicated to defining and implementing the best practices of risk management through education.
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