Friday, January 11th, 2013

Posted by Steve Cook

Bankers Expect Run on Mortgage Credit

In stark contrast to the significant household deleveraging that has taken place over the past five years, a large majority of bankers believe the numbers of consumers applying for refinancing and new mortgage credit will increase over the next six months.

FICO's latest quarterly survey of U.S. bank risk professionals, found that bankers expect the supply of consumer credit to satisfy the growing demand. A majority of respondents believe the supply of financing for auto loans, credit cards, new mortgages, small business loans, student loans and mortgage refinancing will meet or exceed consumer demand over the next six months.

The FICO survey found that 61 percent of bankers expect an increase in the number of requests for credit line increases over the next six months. The same percentage of respondents expects the amount of new credit requested by consumers to increase during that time. Both those results are the highest FICO has seen during the 11 quarters it has been conducting this survey.

"These results indicate that 2013 could be the year that Americans begin to embrace credit again, after the considerable deleveraging we've seen since 2008," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "With both the job market and real estate sector showing signs of life, American consumers may again be willing to fund their lifestyles by taking on more debt. And it appears that banks are willing to oblige."

Some 61 percent of bankers participating in the survey said that they expect the credit supply will meet or exceed demand for mortgage refinancing but only 51 percent said the credit supply will be able to handle requests for new mortgages. Nearly believe demand for mortgages will surpass supply.

Despite the survey results pointing towards an end of household deleveraging, the survey found that most bankers would like to see consumers remain cautious with their finances. Over 70 percent of bankers polled believe consumers should either save their money or pay off debts. Specifically, respondents were asked what advice they would give to typical consumers heading into 2013.

The survey included responses from 251 risk managers at banks throughout the U.S. in December 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.