FICO Survey: “Sharp and Deep Turn to Pessimism” on Housing, Credit Card Lending, Auto and Student Loans

Aaron Task at the Daily Ticker had an interesting interview with Mark Greene, CEO of FICO regarding a “Sharp and Deep Turn to Pessimism” by risk managers at lenders.

FICO's quarterly survey of bank risk managers shows a "sharp and deep turn to pessimism," as CEO Mark Greene details in the accompanying video.

"Across the board [there's] unhappy news" in the survey, most notably in housing, Greene says.

According to the survey, 73% of bank risk managers expect mortgage foreclosure to rise in the next 5 years and 49% predict housing prices won't return to 2007 levels until 2020, at the earliest.

If true, America could be looking at "a decade of housing disaster," which will prompt more and more homeowners to 'walk away' from under-water mortgages, Greene says.

Unfortunately, the bad news is not limited to housing. Among the survey respondents — basically, the people who decide whether consumers can get loans — there are signs of increasing concern about the health of U.S. consumers, across all areas:

• Auto Loans: 30% expect delinquencies to rise.
• Credit Cards: 40% expect delinquencies to rise.
• Student Loans: 48% expect delinquencies to rise.

"Consumers had been doing fairly well — paying off credit card balances. Even student loans were doing well," Greene says. "All of those have turned negative as well in the outlook of risk managers."

To make matters even worse, the survey suggests banks are starting to tighten lending standards and restrict the amount of capital available to consumers, particularly in mortgages, the FICO CEO notes.

This is another sign the economy is already in a recession, not just headed for one.

Addendum:

Patrick Pulatie at LFI Analytics pinged me with this comment: "I have spoken with many lender risk officers. Most will admit off the record that recovery in housing will be much longer, two decades plus. However, they cannot admit that openly."

Mish: It depends on the reference. If one is looking for 2006-2007 peak pricing, then I agree. Furthermore, in "real" terms it may never happen.

However, the bottom in price will be in long before that. Some areas may have bottomed already. Just don't expect prices to go much higher for a long time after the bottom is reached.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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