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Archive for the ‘Mortgage Meltdown’ Category

Credit Card Payment More Important Than House Payment?

In an unprecedented shift, for some consumers having a credit card in good standing appears to have taken priority over having a roof over one’s head, experts said.

While overall consumer debt rose unexpectedly in January, consumers continued to pay off their credit cards that month — a record 16th straight month of lower credit-card debt — with such debt dropping about $1.7 billion to $864.4 billion, according to the Federal Reserve on Friday.

But a small slice of those consumers are paying down credit cards to the detriment of their mortgage loan. The number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6% in the third quarter of 2009 from 4.3% in the first quarter of 2008, according to a TransUnion study of 27 million anonymous consumer records pulled randomly from its database. Meanwhile, the portion of those who fell behind on credit-card payments but paid their mortgage dropped to 3.6% from 4.1%.

The trend is more common among consumers with the lowest credit scores. The percentage of consumers with low scores who paid credit cards rather than home loans shot up to 29% in the third quarter of 2009 from 19.1% in the fourth quarter of 2007, according to TransUnion. And in that low-credit-score group, consumers falling behind on credit cards but keeping pace with mortgage payments declined to 14.5% in 2009 from 18.1% in the first quarter of 2008.

GMAC Loses $5 Billion in Fourth Quarter

NEW YORK (Reuters) – GMAC Financial Services, a lender that has received more than $16 billion from the U.S. government across multiple bailouts, said it lost $5 billion in the fourth quarter after writing down bad mortgage assets.

GMAC, one of the largest car loan makers in the United States, said in December that it did not expect to record more major losses from its mortgage unit. Home loans fueled GMAC’s growth earlier this decade but have since triggered billions of dollars of losses for the company.

The fourth-quarter loss compares with net income of $7.5 billion in the fourth quarter of 2008.

Home Foreclosures Jump 23%

Oct. 15 (Bloomberg) — U.S. foreclosure filings climbed to a record in the third quarter as lenders seized more properties from delinquent borrowers, according to RealtyTrac Inc.

A total of 937,840 homes received a default or auction notice or were repossessed by banks, a 23 percent increase from a year earlier, the Irvine, California-based seller of default data said today in a report. One out of every 136 U.S. households received a filing, the highest quarterly rate in records dating to January 2005.

“The problem is prime loans going into foreclosure and people being underwater and losing their jobs,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a really bad number.”

Mounting foreclosures mean U.S. home prices probably will resume falling, analysts from Amherst Securities Group LP in New York said Sept. 23. A “shadow inventory” of 7 million properties are in the foreclosure process or likely to be seized, up from 1.27 million in 2005, they said.

Home Foreclosures Not Stopping Anytime Soon

Every 13 seconds in America, there is another foreclosure filing. That’s the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.

If anything, the country’s worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.

Home Prices May Fall Another 25%

Home prices in the US could fall by another 25 percent because of high unemployment and another leg down will come for stocks, banking analyst Meredith Whitney told CNBC Thursday.

“No bank underwrote a loan with 10 percent unemployment on the horizon,” Whitney said. “I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when.”

Local governments and states are chronically under-funded and “most states are under water,” adding to the problem of low private consumption, she said.

Unemployment Rising and Economy Still in Decline

For much of last week, it was possible to think that the economy was looking up. Various indicators, though weak, were not as bad as expected.

On Friday, reality bit back with the news that the unemployment rate spiked in March, to 8.5 percent, a 25-year high. The government’s report also showed that employers had shed 663,000 more jobs in March. Nearly two million jobs have vanished this year — 5.1 million since the recession began in December 2007. The ranks of the unemployed now stand at 13.2 million.

There is no longer any doubt that the current recession will be the longest yet in America since World War II. The previous record-holders — the contractions of the early 1970s and the early 1980s — each lasted for 16 months. As of now, the economy already has been in decline for 16 straight months.

The questions now are how much longer the recession will be and how much worse it will get. Measured by the labor market, the answer to both questions is “a lot.” That is because employers will continue to cut jobs as long as the economy is weakening and will resume hiring only once they are sure a recovery is under way.

In this recession, the traditional paths to recovery are especially blocked. Economic rebounds — especially from steep declines — are generally led by recovery in the housing market. This time, housing is unlikely to provide the spark. By prudent estimates, housing sales and prices will not begin to turn up appreciably until 2010 at the earliest.

Why Not Just Let AIG Go Under?

Last week’s outrage over big bonuses paid to executives at AIG has more than a few readers wondering: Why can’t we just let these big companies go out of business?

Roughly half of the $180 billion the government has given AIG has already flowed, indirectly, to the “counterparties” that bought what amounts to financial insurance policies. The list includes big banks, other financial institutions and governments.

The state of California, for example, collected $1 billion it invested in what’s called a Guaranteed Investment Agreement. That’s a kind of interest-bearing savings account where states and cities stash money they’ve raised from a bond offering until they need the money. More than $12 billion in federal bailout funds paid to AIG went to more than 20 states that invested money with the company.

Some $80 billion in AIG bailout money also went straight to banks and investment firms around the world that did business with AIG. It’s possible some of those banks might be able to absorb those losses. But given the current fragile state of the global banking system, it’s entirely possible that AIG’s failure could bring down one or more big banks.

Why not let those banks fail, too? The problem is that the world’s banks are interconnected in a kind of global river of money that we all rely on to keep the economy moving. If too many banks fail, that river starts to dry up. With the economy in a steep decline, we need money flowing through the system faster — not slower.

AIG’s Financial Products division wasn’t regulated. After Congress passed a law in 2000 deregulating the kind of paper bets AIG was making, the company was free to write as much of this “insurance” as it wanted without demonstrating it could cover any and all bets that went bad. By some estimates, the company made about $500 billion in paper bets with little or nothing to back them up.

Taking back bonuses paid to the people who made the mess does little to fix the underlying problem. Some of the members of Congress now expressing the loudest outrage were among those who approved the rules that let AIG get into the casino business in the first place.

Then again, maybe the failure of Congress to act sooner isn’t all that surprising. AIG was one of the biggest contributors to key members of Congress in charge of making the rules. The company, like the rest of the financial services industry, got some of the best laws money can buy.