Bank risk professionals expect delinquencies on most types of consumer loans to rise, balances on credit cards to grow and global concerns will all affect the nation's economic health, according to a FICO survey.
In FICO's quarterly survey conducted by the Professional Risk Managers' International Association, consumer credit is seen to be weakening, particularly in the housing market.
Out of 312 risk managers surveyed across the nation, 47% expect mortgage delinquencies to rise, while 13% believe delinquencies will decrease. FICO said this is a slightly more pessimistic outlook compared to the previous quarter.
Many risk managers also are concerned about credit card delinquencies with 45% expecting more late payments and 21% projecting fewer delinquencies. Meanwhile, most (54%) respondents think credit card balances are going to increase this year due to higher spending and financial stress for consumers who are unable to pay down their current balances.
One area that risk managers are worried about is student loan debt. FICO said this type of debt now exceeds credit card debt with approximately $750 billion in student loans considered to be outstanding. In the survey, 67% of respondents expected delinquencies on these loans to rise, while only 8% thought delinquencies would decrease.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” said Andrew Jennings, chief analytics officer at FICO. “A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults. Our survey results underscore the ongoing challenges that millions of American households face as they try to cope with their debt during these uncertain times.”
When survey respondents were asked about the most likely trigger for a possible double dip in the U.S. economy, the Eurozone debt crisis was cited most often (38.8%), followed right behind by government policies (38.4%). There were 65% of respondents who feel that the influence of Chinese consumers could also overtake U.S. consumers within the next five to 10 years. However, 28% believe U.S. consumers will still have a major influence on the economy for another 20 years or longer.
“Whether it's debt trouble in Europe or economic growth in Asia, there are significant implications for the near-term and long-term strength and health of the U.S. economy,” Jennings added. “There are risks, challenges and opportunities all around us.”
