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Lending Thaw Ahead for Subprime Borrowers?

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Consumers with low credit scores might have better chances of getting a loan soon thanks to the broadening of lending efforts by the nation’s largest institutions.

Many industry experts now expect that lending to subprime borrowers for auto loans and credit cards will expand significantly for at least the remainder of the year, according to a survey by the Professional Risk Managers’ International Association for the credit scoring company Fair Isaac Corp, or FICO. Much of that is due to improving economic factors and expected continual declines in delinquency across nearly all types of consumer credit.

In particular, about 50 percent of those risk professionals polled said that they believed subprime auto lending to take the most significant leap forward this year, while another 38 percent responded similarly with regard to credit cards, the report said. The remaining 12 percent felt that lenders would broaden mortgage issuing.

“We are clearly seeing a loosening of credit in the auto finance market, with lenders responding to increased consumer demand,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “This is good news for car dealers and it should help the auto sector continue its recovery. However, underwriting for other types of consumer lending, particularly mortgages, is still tight. Lenders aren’t yet ready to increase their exposure for the sake of growing their mortgage portfolios.”

Meanwhile, experts also weighed in on just how much they think delinquency will change over the remaining months of the year, the report said. In all, 77 percent said there would be drops in late auto loan payments, while 73 predicted the same for mortgages. Another 72 percent anticipate a decline in small business loan delinquency, with 69 percent expecting additional drops in late credit card balances. Only one type of credit, student loans, were expected to see an increase in delinquency, with 64 percent of those polled noting this concern.

Declining delinquency and default rates for all major lenders across nearly every type of credit has been a driving factor behind issuers broadening qualification requirements. Experts have predicted, though, that as credit qualifications broaden, delinquency rates will naturally increase.

Image: Kyle May, via Flickr

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