Delinquencies on home-equity loans and credit card payments hit record highs in the first quarter of this year, according to data released today by the American Bankers Association.
Home-equity loans were one of the major culprits of the current crisis. To recap: Cheap credit caused a housing boom in the first part of this century. Skyrocketing home values led homeowners to take out home-equity loans -- essentially, treating their homes like ATMs -- to buy consumer products. Then, when home values started flattening then falling, it all collapsed, debt upon debt.
According to the American Bankers Association, delinquencies on home-equity loans climbed to 3.52 percent from 3.03 percent in the fourth quarter of 2008, with late payments on the loans jumping to a record 1.89 percent.
This is due to job losses. With official U.S. unemployment at 9.5 percent and climbing, expect more delinquencies, as the bills come due and homeowners no longer have regular paychecks coming.
At the same time, the bankers said delinquent accounts on bank-issued credit cards spiked to a record 6.6 percent of outstanding card debt in the first quarter from 5.52 percent in the fourth quarter of 2008.
This is even worse news: It means people are living off their credit cards with 28 percent interest rates now that their home-equity loans have run out.
This is why smart people are skeptical that the U.S. is in a real recovery. Many believe there's more bad news to come until unemployment starts dropping and home prices stabilize.
Source
Monday, August 10, 2009
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