Lenders have made significant efforts in recent months to expand the availability of certain types of credit to consumers who are now considered subprime, and many experts believe that trend will continue at least through the end of the year.
It's believed that lenders across the country will continue to expand their credit qualification requirements for borrowers over the next six months to include more people whose scores are considered subprime, according to a new survey of industry experts conducted by the Professional Risk Managers' International Association on behalf of the Fair Isaac Corporation, better known as the credit scoring bureau FICO. In all, the largest proportion of those surveyed - 50 percent - said they thought auto lending to subprime would expand most significantly, while another 38 percent said it would come in the form of credit card issuing. Only 12 percent said they expected the increase to come in the form of more residential mortgages.
Further, just 44 percent of those polled thought lending to these consumers would remain flat over the remaining months of 2012, the report said. Dr. Andrew Jennings, head of FICO Labs and the company's chief analytics officer, said that part of the increase in auto lending to subprime borrowers comes because of greater demand for this type of loan in recent months. Consumers generally saw their personal finances improve in the last several months and as a result, many may now feel they are in a position to begin taking on new lines of credit.
But at the same time, even as some experts believe that issuing of mortgages to more borrowers will expand, there may be a problem with that as well, the report said. Currently, mortgage lending is extraordinarily tight and even slightly loosened standards won't necessarily allow a significant number of borrowers to take on this kind of financing. In general, mortgage lending has remained tight because of the large amount of money and risk that is involved, and the costs that lenders face for dealing with instances of delinquency and default when consumers can no longer pay.
However, at the same time, many risk professionals also cite mortgages as the second-most likely type of credit to see a decline in delinquency over the next six months, the report said. In all, 73 percent of those polled thought late payments on this loan type would slip, compared with 77 percent of auto financing. Another 72 percent predicted a dip in small business loan delinquency, while 69 percent felt the same about card debt. On the other hand, 64 percent believed late student loan payments would increase.
In the past, many experts had predicted that instances of credit card delinquency would increase at some point in the near future simply because there has to be a bottoming out in this area at some point. Credit card delinquency has hovered at or near record lows for months now.