Over 50 Percent of FICO Survey Respondents Expect More Subprime Auto Lending
July 11, 2012
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MINNEAPOLIS — Dealers who have potential buyers with
subprime credit standings might have a better chance of getting them financed
if FICO's quarterly survey of bank risk professionals is any indication.
More than 50 percent of respondents expected the auto sector to see the largest increase in subprime borrowing this year. The survey indicated 38 percent of respondents 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 this year 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 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," Jennings cautioned. "Lenders aren't yet ready to increase their exposure for the sake of growing their mortgage portfolios."
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.
State of Consumer Credit Health: Stable
When asked about their expectations during the next six months, the majority of respondents expected delinquency rates to remain flat or decrease for credit cards (69 percent), vehicle loans (77 percent), mortgages (73 percent) and small business loans (72 percent).
However, a majority of respondents (64 percent) 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," Jennings surmised.
"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," he continued. "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."
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