FICO’s latest quarterly survey of bank risk professionals found that growing optimism of late 2010 and early 2011 has been replaced with a markedly pessimistic outlook for defaults and home prices.

The survey, conducted for the Fair Isaac Corporation (FICO) by the Professional Risk Managers’ International Association (PRMIA), shows that bankers expect delinquencies on consumer loans to rise, underwriting standards to become stricter, and the housing sector to continue struggling far into the future.

Nearly half, 49 percent of bank risk managers said they do not expect housing prices to return to 2007 levels before 2020.  Some 73 percent believe mortgage defaults will remain elevated for at least five more years. Furthermore, 46 percent expect mortgage delinquencies to increase over the next six months, and only 15 percent believe mortgage delinquencies will decline during that period.

“Housing has been an enormous drag on the economy for over three years as U.S. households lost trillions of dollars in equity,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation. This puts the devastation of the housing crash into perspective.”

Bankers expressed concern about consumer credit health beyond mortgages. When asked their opinions about the next six months, a large number of survey respondents indicated that they expect delinquencies to rise on auto loans, credit cards and student loans. Auto lending had been a bright spot in FICO’s previous quarterly surveys, but in the latest survey, 30 percent of respondents indicated that they expect auto delinquencies to rise, while 21 percent expected them to fall. For credit cards, 40 percent expected delinquencies to rise and 23 percent expected them to fall. And for student loans, 48 percent of respondents expected delinquencies to rise and 13 percent expected them to fall.

By a margin of 36 percent to 17 percent, survey respondents expected delinquencies on small business loans to increase rather than decrease. And while 57 percent of bankers surveyed expected the amount of credit requested by small businesses to increase over the next six months, only 34 percent expected the amount of credit that is actually extended to small business to increase. This “credit gap” between supply and demand has been persistent over the past six quarters.