March 2008

THE CREDIT CRISIS EXPANDS
The credit crisis is no longer just a sub-prime mortgage issue. As property values are falling nation-wide and the lending world is tightening their guidelines, people with good or prime credit history are now falling behind on payments. They are becoming delinquent on their mortgages, auto loans and credit cards at an increasingly fast pace. This has been reported by Industry Data and Economists.

The severity of the delinquencies for prime customers vs. sub-prime is much lower but still increasing. The reason for this is that many prime mortgage customers with good credit history bought a home when the market values were appreciating. Many of these people were looking to “leverage” their money by purchasing the home on an adjustable rate or interest only rate allowing for a much lower payment. They were planning on “leveraging” the money they saved those first 2-3 years and invest the money elsewhere. At the end of the 2-3 years they would refinance into a fixed interest rate and have gained equity during that period. The issue is that the housing market collapsed and the lending world tightened their guidelines to the point that not even these individuals with good credit could refinance. In many cases they now owed more then what the home was even worth. This is causing many prime customers to fall behind as the rates adjust and the interest-only loan payments increase monthly.

At the end of September, nearly 4% of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association. That was the highest rate since the group started tracking prime and subprime mortgages separately in 1998. Now the delinquency and foreclosure rate for all mortgages of 7.3% is higher than it’s ever been since 1979!

Besides just the primary mortgages, credit cards and home equity lines of credit are also seeing the delinquency trend among prime customers as well. Fitch Ratings, a debt rating firm, stated that credit card companies wrote off 5.4% of their prime card balances in January, up from 4.3% a year ago. With home equity lines of credit, according to Moody’s Economy.com, are at a delinquency or default rate of 5.7% at the end of last year. This is up from 4.5% one year earlier.

These statistics illustrate that it’s not only about having good credit, because our financial world is much more complex than that. The increasingly rising percent of prime credit customers in delinquency or default proves this. What is happening is that many people are getting caught-up in the financially fast-paced world we live in and not paying attention to the financial environment around them. If you slow down and learn the basics of credit, debt and finances--- you will--- Make Opportunity Reality!