Banking risk professionals predict fewer mortgage delinquencies in the second half of the year as the housing market continues to stabilize, a new survey from analytics firm FICO revealed.

And while demand and supply for consumer credit is expected to reach more of a balanced state in the second half of the year, student loan debt is now the largest concern for banking risk professionals.

The FICO survey, which was conducted by the Professional Risk Managers’ International Association, says 47% of risk managers expect mortgage delinquencies to decline – the highest level achieved thus far in the survey report.

On the other hand, analysts predict a harder landing for student borrowers in the second half.

Student loans remain the only segment of the consumer market where delinquencies are expected to rise in the coming six months.

When asked whether delinquencies on student loans will remain steady or decline in the next six months, only 44% of respondents reacted favorably to that question.

That means roughly 56% of the surveyed group remains skeptical or at least somewhat pessimistic about this segment and predict the possibility of more defaults. 

Comparatively, 88% of those surveyed expect delinquencies to decline or stay the same for residential mortgages, and 85% are confident home equity lines will either see fewer late payments or maintain the same level of performance in the second half. 

Even car loans are performing somewhat favorably, with 76% of risk professionals believing delinquencies on auto loans will either decline or stay the same.

Overall, the report shows risk professionals predicting a pick up in the extension of consumer credit.

Fifty-six percent of those surveyed said the amount of credit extended will increase in the coming quarters – the first above average response in several periods.

Sixty-one percent expect credit card balances to grow, which means all of the deleveraging occurring among consumers is about to come to an end.

"This is the first time since we initiated the survey in 2010 that expectations for the growth of credit demand did not exceed expectations for the growth of credit supply," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs.

"This shows the strength of the U.S. economic recovery and is in sharp contrast to what we see in Europe. Findings of our latest survey of European bankers, which we will release next week, show that twice as many UK lenders think the amount of credit requested will rise, compared with those who think the availability of credit will do so."

kpanchuk@housingwire.com