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January 12, 2012
MINNEAPOLIS—January 11, 2012—FICO’s quarterly survey of bank risk professionals found growing concern for the stability of the student loan market and deepening fears about the nation’s housing sector. The survey, conducted for FICO by the Professional Risk Managers’ International Association (PRMIA), shows that bankers expect delinquencies on most types of consumer loans to rise, balances on credit cards to grow, and global economic forces to put increasing pressure on the U.S. economy.
Delinquencies on student loans causing concern
Student loan debt now exceeds credit card debt in the U.S., with experts estimating that $750 billion in student loans are outstanding. In FICO’s survey, 67 percent of respondents expected delinquencies on these loans to rise. That is 19 percentage points higher than last quarter. Only eight percent of respondents expected a decline in delinquencies.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “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.”
Global concerns impacting U.S. economy
Survey respondents were also asked about global issues that could put pressure on the U.S. economic recovery. When 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 percent), just edging out U.S. government policies (38.4 percent). Another 19 percent are most concerned about the lack of spending and investment by U.S. companies.
Survey respondents were also asked about the economic growth of China as it relates to the future strength of U.S. consumers. Sixty-five percent of respondents felt that the global influence of Chinese consumers would overtake that of U.S. consumers within 5-10 years. By contrast, 28 percent felt that U.S. consumers would continue to wield more influence 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,” said Jennings. “There are risks, challenges and opportunities all around us. To compete in this increasingly complex global environment, we’re seeing more U.S. companies embrace innovative analytic technologies to help them understand and navigate the global playing field.”
Consumer credit seen weakening, led by housing concerns
Regarding mortgages, 47 percent of respondents expected mortgage delinquencies to rise and 13 percent expected delinquencies to decrease. That is slightly more pessimistic than last quarter. When asked about credit cards, 45 percent expected delinquencies to rise while 21 percent expected a decline. That is also more pessimistic than last quarter and another sign of deteriorating confidence among bankers. In addition, 54 percent of respondents expected credit card balances to increase. These expected increases are likely due to higher spending by some consumers and financial stress for other consumers who are unable to pay down their balances.
Auto lending had a fairly balanced outlook with 33 percent of respondents expecting an increase in delinquencies, 22 percent expecting a decrease, and 45 percent expecting no change in the level of delinquencies.
A detailed report of FICO’s quarterly survey results is available at http://www.prmia.org/PRMIA-News/FICO_Survey_2011Qtr4.pdf. The survey included responses from 312 risk managers at banks throughout the U.S. in November 2011. FICO and PRMIA extend a special thanks to the Columbia Business School’s Center for Decision Sciences for its assistance in analyzing the survey results.
The Professional Risk Managers’ International Association (PRMIA) is a higher standard for risk professionals, with 65 chapters and more than 80,000 members worldwide. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education, including the Professional Risk Manager (PRM) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found at www.PRMIA.org.
FICO (NYSE:FICO) delivers superior predictive analytics solutions that drive smarter decisions. The company’s groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO’s innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world’s top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health through www.myFICO.com.
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For FICO news and media resources, visit www.fico.com/news.
Statement Concerning Forward-Looking Information
Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2011. If any of these risks or uncertainties materializes, FICO’s results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
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