After Lachman Achuthan's grim forecast earlier Friday, any more bad news feels like piling on.
Well, get those penalty flags ready…
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.
"At the very moment they're worried about consumers' health [banks] are also pulling back," Greene says. Although FICO scores have generally been holding steady or rising as consumers pay down debt, many consumers "still don't qualify [for loans]. We think it gets tougher."
Adding insult to injury, he predicts the "gap between the amount of credit small businesses would wish to have and the amount the banks are willing to grant them" is likely to widen in coming months, based on the results of the survey.
In sum, banks are increasingly worried about the health of U.S. consumers and small businesses, making them less willing to lend, which will put more pressure on already struggling homeowners and prevent small businesses from doing the kind of hiring just about everyone says is needed to address the unemployment crisis in America.
Yep, sounds like the "vicious cycle" ECRI's Achuthan discussed earlier is upon us. (See: "It's Going to Get a Lot Worse": ECRI's Achuthan Says New Recession Unavoidable)