The next economic shoe to drop , CREDIT CARDS

freedom

Veteran
Feb 15, 2006
3,244
274
The next economic shoe to drop , CREDIT CARDS


I hear that the debt from credit cards has been structured in much the same was as MORTAGE BACKED SECURITIES are …..

Now if the economy worsens and people stop paying off their credit cards (as is already happening ) guess what happens next …..


THE SUBPRIME-MORTGAGE crisis has cost millions of homeowners their homes. Now it threatens to put the squeeze on even more consumers by spilling into the credit-card market.
The bad news is pretty straightforward: With home equity dried up, consumers are piling up credit-card debt at a rapidly increasing pace. As of the third quarter of 2007 (the latest for which data is available), credit-card balances increased by 7% on an annualized basis, according to statistics compiled by market research firm TowerGroup. Compared to the average annual increases of 2% over the previous six years, it's clear that we are fast becoming a country precariously living on borrowed money.
"Consumers are being squeezed out of the credit markets," explains Dennis Moroney, senior research analyst at TowerGroup. "They've used up their home equity to finance their lifestyle, but now with that not available, you're seeing a rise in credit balances and a rise in delinquencies."
Indeed, in the third quarter of 2007, delinquency rates — the ratio of the dollar amount of loans 30 days or more past due to the amount of total loans outstanding — at the country's 100 largest banks crept up to 4.47%, from 4.24% for the same period in 2006, according to Federal Reserve statistics. During the real-estate boom years (2004 to early 2006), when homeowners easily refinanced mortgages or took home equity loans to pay off mounting credit-card debt, delinquency rates rarely surpassed 4%. Charge-offs, or debt that has been removed from the banks' books and declared a loss, are also on the rise, at 4% at the end of the third quarter, compared with 3.84% a year earlier.

Should delinquencies continue to mount, it could impact a wide swathe of credit-card holders — even those who don't have trouble paying their mortgages or managing their finances. Credit-card debt, like mortgages, is sold to investors in the form of asset-backed securities. The more consumers default on credit cards, the more these investors have to lose and, much like the situation with mortgage-backed securities, they may start shying away from these investments. As a result, banks will be less willing to extend credit to consumers.
There is some good news. "Assuming the economy doesn't go into recession — and that's a critical assumption — we don't expect things [in the credit-card markets] to get as bad [as the mortgage market]," says Scott Hoyt, director of consumer economics at Moody's Economy.com. Historically, delinquency rates are lower than they were during the recession of 2002 to early 2003, when they bordered on 5%. And they're certainly lower than delinquency rates in subprime mortgages.
At least for now they are. Charge-offs and delinquencies are expected to keep rising. TowerGroup's Moroney predicts they'll start peaking this summer, when the debts incurred during the holidays are charged off the banks' books. The latest job numbers released Friday, which put December unemployment at 5%, don't bode well either, as credit-card delinquencies are tightly linked to folks having jobs. While a single jobs report isn't enough to make Hoyt change his outlook for credit cards — Economy.com's forecast is delinquencies could reach 2002-03 levels by the end of the year — he concedes that the report does present "even more downside risk" to the credit-card industry.
Working to the banks' advantage — and consumers' detriment — is the fact that banks can control credit risk and easily make up at least part of their losses. "Issuers have been through downturns before," says David Robertson, publisher of the Nilson Report, a credit-card industry newsletter. "They look ahead and use analytics to determine the people more likely to become delinquent and therefore result in a charge-off." Those people might see their interest rates go up, or their credit availability decrease. In addition, those who've been late on payments are already paying higher interest rates that make up for potential losses. "You might ultimately charge off $1,000, but you might have made more than $1,000 from that person in high rates and fees," Robertson says.
 
"Assuming the economy doesn't go into recession — and that's a critical assumption — we don't expect things [in the credit-card markets] to get as bad [as the mortgage market]," says Scott Hoyt, director of consumer economics at Moody's Economy.com.

Not to worry. "The fundamentals of the economy are strong."

Or so we are told.
 
The next economic shoe to drop , CREDIT CARDS

I hear that the debt from credit cards has been structured in much the same was as MORTAGE BACKED SECURITIES are …..

How do you figure, Freedom? Mortgage backed securities are "backed" by specific assets... credit card debt is not. I am not suggesting that credit card companies will not face difficulties ahead, but the structuring between the two are very different.
 
Very true, look at the following article from Bloomberg last November 2007 about WAMU.

The title should have been BE CAREFUL WHAT YOU WISH FOR

Article Link
Bankruptcy Law Backfires as Foreclosures Offset Gains (Update1)

Nov. 8 (Bloomberg) -- Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

``Be careful what you wish for,'' Westbrook said. ``They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures.''

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.

Prince Exits

Citigroup Chief Executive Officer Charles O. ``Chuck'' Prince III stepped down this week after the country's biggest bank by assets said it may have $11 billion of writedowns on top of more than $6 billion in the third quarter. Stan O'Neal was ousted as CEO of Merrill Lynch & Co., the world's largest brokerage, after an $8.4 billion writedown. Both firms are based in New York.

Morgan Stanley, the second-biggest securities firm, said in a statement today that subprime losses will cut fourth-quarter earnings by $2.5 billion. The New York-based bank said it lost $3.7 billion in the two months through Oct. 31 as prices for securities linked with home loans to risky borrowers sank further than traders expected.

Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.

In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the federal agency said. New foreclosures rose to a record in the second quarter, led by defaults in subprime adjustable-rate mortgages, according to the Mortgage Bankers Association in Washington.

`Let the House Go'

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

``What we conclude is that people are saying, `Honey, let the house go,''' but keep the cards, Fairbank said Nov. 5 at a conference in New York sponsored by Lehman Brothers Holdings Inc.

The new bankruptcy code makes it harder for debtors to qualify for Chapter 7, the section that erases non-mortgage debt. It shifted people who get paychecks higher than the median income for their area to Chapter 13, giving them up to five years to pay off non-housing creditors.

No Help Left

The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. Two-thirds of debtors won't be able to complete their payback plans, according to the Center for Responsible Lending.

``We have people walking away from homes because they can't afford them even post bankruptcy,'' said Sommer, a Philadelphia- based bankruptcy attorney. ``Their mortgage rates are resetting at levels that are completely unaffordable, and there's nothing the bankruptcy process can do for them as it now stands.''

Four million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40 percent in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody's Economy.com, a research firm and unit of Moody's Corp. in New York.

Lenders began the process of seizing properties on 0.65 percent of U.S. mortgages in the second quarter, a record in a quarterly Mortgage Bankers study that goes back 35 years. The percentage of subprime borrowers making late payments increased to 14.82, a five-year high, from 13.77.

Bankruptcies Increase

Personal bankruptcies rose 48 percent to 391,105 in the first half of 2007 from a year earlier and Chapter 13 filings accounted for more than one-third of those, according to the American Bankruptcy Institute. In the first half of 2005, they were just 24 percent of the total.

Bad mortgages slashed Washington Mutual's profit by 72 percent in the third quarter from a year earlier, the Seattle-based thrift said Oct. 17. Income from credit card interest rose 8.8 percent to $689 million in the period, helping to offset a loss the bank warned on Oct. 5 would be 75 percent.

Washington Mutual shares tumbled the most in 20 years yesterday after New York Attorney General Andrew Cuomo said the thrift had pressured real estate appraisers to assign inflated values to properties. Its dividend yield fell to 11 percent and the company traded at 0.74 price-to-book value.

Citigroup's third-quarter earnings fell 57 percent on mortgage losses. Bank of America stopped so-called warehouse lending to mortgage brokers after its profit declined 32 percent in the same period.

`Unintended Consequence'

JPMorgan reported profit growth of 2.3 percent in the quarter, the smallest in more than two years, after reducing the value of leveraged loans and collateralized debt obligations, investment packages of mortgages, by $1.64 billion.

Washington Mutual spokeswoman Libby Hutchinson in Seattle, JPMorgan spokesman Thomas Kelly in New York and Bank of America spokesman Terry Francisco in Charlotte, North Carolina, declined to comment on the bankruptcy law.

``The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,'' said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. ``It's bad for the mortgage borrowers and bad for subprime investors because it means more losses.''

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the biggest overhaul to the code in more than a quarter of a century. The old law, the Bankruptcy Reform Act of 1978 that was signed by President Jimmy Carter, had loosened requirements for debt forgiveness.

Lobbying Effort

Financial companies began a coordinated lobbying campaign for bankruptcy reform in 1998 when the American Financial Services Association, a trade group representing credit card companies, joined the American Bankers Association to form the National Consumer Bankruptcy Coalition.

Campaign contributions from the coalition and its members totaled more than $8.2 million during the 2004 election that gave Bush his second term in office. Two-thirds of the donations were given to Republicans who supported the bankruptcy changes, according to the Center for Responsive Politics.

The group, later renamed the Coalition for Responsible Bankruptcy Laws, has since disbanded. Its members included Washington Mutual, JPMorgan, Bank of America, Citigroup, MasterCard Inc., and Morgan Stanley.

Ford Motor Co., General Motors and DaimlerChrysler also were members. They won provisions in the new code that changed the way car loans are treated in bankruptcy.

Reform the Reform

Congress may soon take action to ``reform the bankruptcy reform,'' Zandi said. The House Judiciary Committee is working on legislation to let bankruptcy judges restructure home loans by lowering interest rates and reducing mortgage balances to reflect current market value.

Banks including Washington Mutual, Citigroup and Wells Fargo & Co. sent a letter to the committee opposing the change, saying such restructurings should be done privately.

Countrywide Financial Corp., the largest U.S. lender, said last month that it will modify $16 billion worth of adjustable-rate mortgages. Washington Mutual said in April that it will spend $2 billion giving discounted rates to help customers with subprime loans refinance at better terms.

So far, most lenders have been reluctant to change loan agreements. About 1 percent of mortgages that reset in January, April and July were modified, according to a Sept. 21 Moody's Investors Service report that surveyed 16 subprime lenders that account for 80 percent of the market.

Congress probably will approve at least a limited measure to permit loan modifications, said Westbrook, the University of Texas law professor.

``They are going to have to figure out some way to address the problem,'' Westbrook said. ``I don't think our economy or our consciences can handle the number of foreclosures we'll see if they do nothing.''

To contact the reporter on this story: Kathleen M. Howley in Boston at [email protected]
Last Updated: November 8, 2007 11:07 EST
 
  • Thread Starter
  • Thread starter
  • #5
That is true lilly , but I’ve just begun to research this issue , and from the articles I’ve pulled up off of google , it appears that the debt of visa is held by different entities , one article mentioned that pensions could be hurt …

I’m still researching this issue , but if as I suspect credit card defaults were to rise , this could be the next tidal wave coming our way …


For instance , I’ve already said see ya to Visa after maxing out my card , and I’ve done the same on all my cards .. Seeing as it’s unsecured debt , what’s the worst they can do to me ? Lower my credit score? Ah Hashanah the credit market is frozen , credit scores no longer count for squat … and we can expect to see every homeowner in foreclosure to do exactly as I’ve done . (if they have brains )
 
The next economic shoe to drop , CREDIT CARDS


I hear that the debt from credit cards has been structured in much the same was as MORTAGE BACKED SECURITIES are …..

So, in other words, you have no idea what you're talking about.
 
  • Thread Starter
  • Thread starter
  • #7
So, in other words, you have no idea what you're talking about.


JS , i'd say i have a supeior view of what's going on in the US economy .... 90% of american's don't understand what's happening or why .......

EDIT: here read this

Another shoe to drop
Bad credit-card debt could be next shot to economy, researcher says
By Jennifer Waters, MarketWatch
Last update: 7:42 p.m. EDT Sept. 30, 2008Comments: 287CHICAGO (MarketWatch) -- Credit-card debt is on the brink of imploding and will be the next storm to hit the fragile finance industry, an investment research firm predicted this week.

link click here to read the article
 
That is true lilly , but I’ve just begun to research this issue , and from the articles I’ve pulled up off of google , it appears that the debt of visa is held by different entities , one article mentioned that pensions could be hurt …

I’m still researching this issue , but if as I suspect credit card defaults were to rise , this could be the next tidal wave coming our way …


For instance , I’ve already said see ya to Visa after maxing out my card , and I’ve done the same on all my cards .. Seeing as it’s unsecured debt , what’s the worst they can do to me ? Lower my credit score? Ah Hashanah the credit market is frozen , credit scores no longer count for squat … and we can expect to see every homeowner in foreclosure to do exactly as I’ve done . (if they have brains )

Sad but True.
B) xUT
 
That is true lilly , but I’ve just begun to research this issue , and from the articles I’ve pulled up off of google , it appears that the debt of visa is held by different entities , one article mentioned that pensions could be hurt …

I’m still researching this issue , but if as I suspect credit card defaults were to rise , this could be the next tidal wave coming our way …


For instance , I’ve already said see ya to Visa after maxing out my card , and I’ve done the same on all my cards .. Seeing as it’s unsecured debt , what’s the worst they can do to me ? Lower my credit score? Ah Hashanah the credit market is frozen , credit scores no longer count for squat … and we can expect to see every homeowner in foreclosure to do exactly as I’ve done . (if they have brains )

Your house is in foreclosure?
 
  • Thread Starter
  • Thread starter
  • #10
Your house is in foreclosure?

Nope …..


But hey , with the entire us economy going down the drain , I figured “might as well go get the stuff I wanted “… sadly I never had that much credit on my card to begin with because I’m poor … but I got a few nice goodies out of it ….
 
Your house is in foreclosure?

It does not matter. His hypothetical (if that is what it is) is true enough. Credit Card debt and Home Equity Debt will be included in the causalities. I have not seen a comprehensive list of cascading obligations from our 'leaders' but they are in fact liabilities that will be affected by this simple $700 Billion debacle.

B) xUT
 
Nope …..


But hey , with the entire us economy going down the drain , I figured “might as well go get the stuff I wanted “… sadly I never had that much credit on my card to begin with because I’m poor … but I got a few nice goodies out of it ….

For your sake, I hope your posts are anonymous. Taking on credit card debt with no intention of paying it back is known as "abuse of the credit system", and while it's not a crime, it is a reason to deny you relief under the bankruptcy laws.

This means that when the bank sues you, they get to garnish your wages. If you thought US didn't pay you much now, just wait until your net pay is even smaller after the garnishment. Nice going!!!!


My ex-wife did the same thing, maxxing out her credit cards and tossing the bills in the garbage just to have more stuff. She will learn her lesson soon when she files for bankruptcy and I show up at the hearing and tell the judge what she did and ask the court to dismiss her case on account of abuse of the credit system.

Freedom, I don't understand how you can say that the banks are in big trouble and need a taxpayer bailout, while at the same time contributing to the problem by abusing the banks via credit cards? You're nuts.
 
Freedom, I don't understand how you can say that the banks are in big trouble and need a taxpayer bailout, while at the same time contributing to the problem by abusing the banks via credit cards? You're nuts.

Why would that be? All my life I have "played by the rules"...I live a solidly middle class lifestyle in a nice house that I am paying for and pay off my credit card debt in full. Meanwhile, mortgage brokers are creatively lending money to everybody and their dog...credit card companies send me at least 3 offers per week in the mail (how many Capital One offers do YOU get?) the execs of these companies make handsome paychecks and bonuses. Then when it all falls apart - there is a move to "bail out" two groups - the scum that made the loans and the people who bit off more than they could chew financially. There isn't any relief to any of us who opted for a higher fixed rate 30 year mortgage over a teaser 5 year ARM which lured them into buying way more than they could afford. So...my tax dollars (China's loan proceeds) are used to keep the banking execs from having to "downsize" in any way and plans to provide those who "overbought" on an ARM a way to keep their house and have their rate fixed at a rate that is still LOWER than the one I have on my home.
 
Why would that be? All my life I have "played by the rules"...I live a solidly middle class lifestyle in a nice house that I am paying for and pay off my credit card debt in full. Meanwhile, mortgage brokers are creatively lending money to everybody and their dog...credit card companies send me at least 3 offers per week in the mail (how many Capital One offers do YOU get?) the execs of these companies make handsome paychecks and bonuses. Then when it all falls apart - there is a move to "bail out" two groups - the scum that made the loans and the people who bit off more than they could chew financially. There isn't any relief to any of us who opted for a higher fixed rate 30 year mortgage over a teaser 5 year ARM which lured them into buying way more than they could afford. So...my tax dollars (China's loan proceeds) are used to keep the banking execs from having to "downsize" in any way and plans to provide those who "overbought" on an ARM a way to keep their house and have their rate fixed at a rate that is still LOWER than the one I have on my home.

Hence the stupidity of the proposed bailout. It's a massive extension of the welfare state and is completely inexcusable.

Call your Congressional Representative and tell him to vote NO!
 
For instance , I’ve already said see ya to Visa after maxing out my card , and I’ve done the same on all my cards .. Seeing as it’s unsecured debt , what’s the worst they can do to me ? Lower my credit score? Ah Hashanah the credit market is frozen , credit scores no longer count for squat … and we can expect to see every homeowner in foreclosure to do exactly as I’ve done . (if they have brains )

You are one aspect of whats wrong in the credit industry today.You are one reason Congress overhauled the bankruptcy laws.When the merde hits the ventilateur credit will be tight to those with good ratings.....someone like you will do the soup line ala carte.

Past generations haven't seen the likes of what our grandparents did.I think it will be a very rude awakening to those who have grown up eating out of a silver spoon.
 
Back
Top