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Consumer Credit Improving, but Housing to Remain a Drag: FICO Survey

Fin - Daily Ticker - US

A new survey from credit-scoring firm FICO indicates that views on the U.S. economy are a lot like the economy itself, that is to say decidedly mixed.

FICO's Quarterly Survey of Bank Risk Professionals revealed that bankers are "optimistic" about consumer financial health, but also found that the small business "credit gap" likely will worsen and that housing will remain a drag.

The survey found that 38% of respondents believe credit card delinquencies will stay flat in the next half year, while 31% are looking for a decline. Another 30% expect delinquencies to rise.

"Although some consumers continue to struggle with debt, credit usage is under control at an aggregate level. Credit card delinquencies and charge-offs are at pre-recession levels," said Andrew Jennings, chief analytics officer at FICO and head of FICO Labs, in a press release covering the survey.

Mark Greene, the chief executive of FICO, joined Aaron on the set to go over the parts-good, parts-bad findings and to offer some perspective on how the results compare with past studies.

"[Consumers] have been working down their debts over the last couple of quarters. In fact, for 10 quarters in a row we've seen total consumer debt … it's declined. That's a good thing," Greene says. "We now have the lowest amount of consumer debt, other than mortgages, in the last 15 years."

Greene says the "beginnings" of a credit turnaround are underway, with consumers spending a bit more and banks more willing to extend additional credit, which should be good for economic growth.

But that's countered by the reality that aspects of the economy have yet to recover from the recession. In particular, recent jobs numbers have shown that the economy's rebound has a considerable way to go. Greene notes that small business is an area that remains weak, because many shops and firms are struggling to get credit.

"Since they're not getting the credit, they can't afford to hire new workers, and as a result, we're not seeing the growth in the labor market that you'd expect to see," he says.

One of the two negative findings in the survey was that "we actually took a step backward when it comes to small businesses" compared with the prior quarter.

The other downside, not surprisingly, was around the housing market. Delinquencies and foreclosures are expected to grow in the next six months, according to the survey, with activity especially predicted around "strategic defaults," or cases in which homeowners walk away from mortgages written for more than the houses are now worth.

The survey was conducted for FICO by the Professional Risk Managers' International Association, and the results were analyzed by the Columbia Business School.

For more details, be sure to watch the accompanying interview. After you do, share your thoughts below. Are you more willing to spend as a consumer? If you're a small business owner or employee, how do the survey's findings compare with what you're seeing?