Outlook for Mortgage Credit Mixed

Tuesday, Oct 16, 2012

Risk managers for U.S. banks are almost evenly divided over prospects for residential mortgage credit over the next half year, according to the credit scoring company FICO.

Asked about the availability of mortgage credit for buying homes over the next six months, just over half – 51 percent – said it would be adequate to meet demand. The remaining 49 percent said they expect it to fall short, with no option for “undecided” in the survey.

That’s a slightly more pessimistic view than the last FICO survey three months ago, when 55 percent said they expected mortgage credit to meet demand through the rest of the year.

bank risk managers in the survey were more optimistic about the availability of credit for refinancing a mortgage, with three out of five saying they expected credit to be adequate to meet demand over the next six months.

Tight credit has been a major burden on the housing market, particularly for residential sales. The National Association of Realtors has estimated that more traditional lending standards would boost home sales by 500,000 – 700,000 a year. The current rate is about 4.6 million annually.

Outlook good for credit cards, auto loans

The outlook was more positive for credit cards and auto loans, where about three-quarters of risk managers foresaw an adequate supply of credit over the next six months for each. They were less optimistic about small business and students loans, where about 45 percent of risk managers expected credit availability to fall short for each.

In terms of credit delinquencies, the majority expected them to stay the same or decrease over the next sixth months for both residential mortgages and home equity lines. Roughly a quarter in each category expected delinquencies to worsen.

Asked about personal financial decisions

One of the more interesting parts of the survey was where risk managers were asked what they would do, personally, if they had enough cash on hand to immediately pay off their mortgage. Of these financial professionals, 35 percent said they would pay off their home loan, the most popular response.

Another 22.5 percent said they would invest it in the stock market, 19.5 percent would pay off other debts and 12.5 percent said they would invest in bonds and fixed-income assets. The least popular option was putting it in CDs or a savings account, chosen by 10.5 percent.

First published at: http://www.mortgageloan.com/outlook-mortgage-credit-mixed-9268

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