Delinquencies to Decrease Slightly, Price Appreciation Sustainable -FICO Survey

Most risk professionals who participated in a recent survey believe the status quo is going to prevail when it comes to loan delinquencies over the next six months.  In survey conducted in the first quarter by FICO and the Professional Risk Managers Association (PRMIA) the respondents, 58.5 of whom said their main area of responsibility was mortgages, were asked to predict the path of delinquencies for seven categories of loans.  A plurality expect delinquency rates to stay the same for most loan types and few expect to see further increases.   

While 45.2 percent of respondents felt mortgage delinquency rates would remain fairly constant over the next six month, 38.5 percent do expect further declines compared to 31.3 percent in the previous survey conducted in the fourth quarter of 2012.    Less than 20 percent expect delinquencies to increase to any degree.  The same pattern was true of home equity lines of credit (HELOCs).  About 45 percent expect delinquencies in that category to remain about the same while 36 percent expect them to decrease compared to 29.4 percent in the previous quarter. 

Responses to questions about credit card, auto loan and small business loan delinquencies also reflect this view of stability.  The only loan category in which the risk professionals expect significant change is in student loans where nearly half of respondents expect slight increases and 16.4 percent expect significant increases. 

The study's authors said this may partially reflect the many recent news stories about student debt but that as risk professionals it is more likely they are speaking from day to day experience.  They point out that while these opinions could be viewed an anomaly in an otherwise optimistic picture "it is also possible that delinquencies in this form of debt could impact others as individuals struggle to keep up with other debts.  It will definitely be an area to watch."   

The survey asked respondents about the supply of credit over the next six months.  Most predicted that the supply of credit for residential mortgages would meet demand or fall slightly below demand.  Less than 20 percent responded that supply would exceed demand.   About 40 percent saw the supply of credit for refinancing meeting demand while a slightly smaller percentage saw demand slightly exceeding supply.   The authors called this "a small shift away from predictions of mortgage and refinancing supply falling short, a positive sign."  Most viewed the supply of other types of consumer credit as more than adequate to the demand.  

Respondents were asked how they felt about home prices today as that affects mortgage risk.  A majority (70.8 percent) felt that home prices are rising at a sustainable pace although a minority (15.9 percent still worry that there could be further home price corrections. 

The survey also found that 57.5 percent of the risk managers expect levels of existing customers who request credit line increases to rise; 70 percent expect requests for business loans to increase, and 63.7 percent said their institution had updated its credit reporting system within the last two years.

The survey also asked the risk managers about the highest priority for their institutions in 2013.  An equal number cited improvements in customer experience or improvements in utilization of Big Data analytics to gain greater insight into customers.  The third most popular priority was strengthening of fraud prevention systems.  FICO/PRMIA said this suggests that institutions are focused on customer-related goals, recognizing that they haven't yet fully rehabilitated their customer revenue stream after the economic fallout of the last six years.