JPMorgan Chase & Co., the biggest U.S. credit-card issuer, plans to raise the minimum payment on balances to 5 percent for some customers, less than a month before new federal curbs begin to take hold.Citigroup Raises Rates on 13-15 Millions Cards
The increase from 2 percent takes effect in August, the company said in a notice customers received this month. Customers who pay less than the minimum may be charged extra fees, the bank�s Web site says. New York-based JPMorgan has about 159 million cards in circulation, a regulatory filing shows, and spokeswoman Stephanie Jacobson said the new minimum applies to fewer than 1 percent of customers.
By making some customers pay a 5 percent monthly minimum, Chase is minimizing its risk, said Bill Hardekopf, CEO of LowCards.com, a Birmingham, Alabama research firm. �Too many people got credit cards that should not have been approved for credit cards,� Hardekopf said today in an interview. �Chase is deeming those customers as high risk.�
Citigroup Inc has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.Clearly banks have had a voluntary attitude adjustment. They are tired of taking losses on credit cards and are acting to stem losses and raise rates while they still can. My guess is that default rates immediately go up in response to these measures by Citigroup and Chase. However, that is better for Citigroup and Chase than letting consumers run up debts only to default later.
"These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit," Citigroup told the paper.
When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That�s not the bank�s problem, she was told. It�s FICO�s.Involuntary Attitude Adjustment
After Rey�s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so-called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.
Rey said she was counting on a credit �cushion� in case she was affected by the decline in the economy. She said she fears she won�t be able to buy a new home and car because her reduced FICO score will mean higher interest rates on the loans.
�I have been gritting my teeth so hard, I fear for the enamel,� Rey said.
Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.FICO clearly is not perfect. One flaw I see in the system is people had too much credit and FICO did not penalize them enough for it. That FICO scores can rise as credit cards limits rise is certainly a mistake although it seems that FICO corrected some of that in the FICO 08 version.
�Reductions to a consumer�s line of credit based upon the lending institutions� overall appetite for risk has little or no bearing on a consumer�s own risk of default,� said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.
Banks have scaled back lending during the deepest U.S. recession in five decades. The Federal Reserve�s quarterly survey of senior loan officers released May 4 showed about 65 percent of banks lowered credit limits on new or existing credit-card customers, compared with 45 percent in the January survey. Consumer credit, which includes credit card and auto loans, was $2.52 trillion in April, according to a Fed report released this month.
�The emphasis on utilization rates when you�re not running up debt and instead limits are running down makes FICO scores much less reliable,� said Josh Frank, a senior researcher at the Center for Responsible Lending in Durham, North Carolina.
�Is FICO an accurate predictor of risk?� said Evan Hendricks, publisher of �Privacy Times,� a Washington-based newsletter and author of �Credit Scores & Credit Reports.� �It�s the worst system around, except for all the rest,� said Hendricks, taking a line from former U.K. Prime Minister Winston Churchill.
Nowhere is the recovery in financial markets more evident than in corporate bonds, where Lehman Brothers Holdings Inc.�s bankruptcy is becoming a distant memory.Has The Hard Money Been Made?
U.S. investment-grade company debt returned 9.2 percent in the first half of the year, outperforming Treasuries by 13.7 percentage points, the most on record, according to Merrill Lynch & Co. index data. Corporate bonds also did better than the Standard & Poor�s 500 Index of stocks, marking the first time since 2002 that the fixed-income securities outshined both Treasuries and equities.
Yields on investment-grade company securities fell to within 3.31 percentage points of Treasuries yesterday, the least since Sept. 10, according to Merrill�s U.S. Corporate Master Index. Spreads widened to a record 6.56 percentage points on Dec. 5, and the securities lost 6.8 percent in 2008, the worst year on record, as the shock to financial markets from Lehman�s collapse Sept. 15 froze credit markets and sparked a run on Treasuries that caused bill rates to fall below zero.
�Spreads on corporate debt were so out of whack coming into the year, implying default rates that indicated more than 20 percent of all speculative-grade companies would go bankrupt,� said Kevin Sherlock, co-head of loan and high-yield capital markets at Deutsche Bank in New York. �The risk appetite is far more aggressive now than it was three months ago. It�s about where we were last summer at pre-Lehman levels.�
The biggest returns came in the riskiest securities. High- yield, high-risk bonds gained 29 percent, or 34 percentage points more than Treasuries, Merrill Lynch indexes show.
While credit spreads are narrowing, defaults continue to rise. The U.S. speculative-grade default rate jumped to 8.1 percent in May, the highest since October 2002, and may reach 14.3 percent by the first quarter of 2010, according to S&P.
�The easy money has been made,� said Richard Lee, a managing director in the fixed-income trading department of closely held broker-dealer Wall Street Access in New York. �You could have bought any corporate credit in January and February and made out like a bandit.�
Other measures of credit also show improvement. The difference between what banks and the U.S. government pay to borrow for three months, the TED spread, has shrunk to 41 basis points, the lowest since July 2007 and down from 464 basis points in October. A basis point is 0.01 percentage point.
The Libor-OIS spread, an indicator for banks� willingness to lend, ended yesterday at 0.38 percentage point. That�s approaching the 0.25 percentage point that former Fed Chairman Alan Greenspan has said would indicate that markets were back to �normal.�
On June 26, the US Savings Rate Hits 6.9%, Highest In 15 Years. It was 4% when I posted the above chart on May 19, 2009.
Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless.
....
Think the US stock market is going to come roaring back if consumer deleveraging plays out as it must? Think again.
Expect another "Lost Decade" when it comes to housing and the stock market. It's the deflationary payback for the greatest credit binge in world history.
First, the squares. The two items you must have for squares and stripes is a level (either the one below or a laser level that sends a beam of light straight down the wall) and blue painters tape. For this wall, I used two inch painters tape for the whole wall. I used the white wall as the background, but if you want a color, you'll need to paint it that color first.
Then, the measurements all depend on the size of squares that you want, or how many rows/columns you want. Say your wall is 127 inches -- and you want six columns of squares. You'll subtract two inches for each end of the wall, and each two inch space between each column -- basically each spot the painters tape will go.Do the same for the rows up and down as well. I know I made this seem complicated and it's really not that bad. It may take you a few tries to get the right measurements -- it did me. The rest is easy, it just takes time.
I hope that made sense! After you've figured out your measurements, you'll just need to measure off your wall. I use a yard stick, with the measurement marked, and I keep moving it down the wall, marking, say, 19.16 inches up and down the wall. Then take the level and use it to make straight lines on the wall vertically and horizontally.
Using the marks on the yard stick, I used the level and painters tape to put the stripes down the wall. With stripes, you can't do all of them at once. My wall was cream, so that stripe was done. I had to paint three other colors, so I did the dark and medium green first, let it dry (I did NOT wait as long as they recommend and you don't need to) and did a quick second coat. Then I pulled off the tape and the next day did the third, lightest green by reapplying painters tape on each side of that stripe and painting:
Of course, the more colors, the longer it takes. It seems complicated and again, it's not. The great thing about varying stripes is you don't have to measure the wall like with squares. Just figure out what look you want and go. Once you get going, it will go surprisingly fast. Surprisingly. Swear. Pinky swear.
This was done by just painting the wall the base color, then taping off one foot columns and painting a shimmer glaze over the base. It's a really subtle look and I absolutely love it.Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.Mortgage Metrics Report for First Quarter 2009
Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.
�I�m very concerned about the rise in delinquent mortgages and foreclosure actions,� Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama�s plan to create �sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,� Dugan said.
Obama�s program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.
Serious delinquencies on prime loans, which account for two-thirds of all U.S. mortgages, rose to 661,914 in the first quarter from 250,986 a year earlier, according to the report. Overall, mortgages 60 days or more past due rose 88 percent from last year, the report said.
�Serious delinquencies are a leading indicator of increased foreclosure actions in the future,� the report said.
The data shows 5.9 percent of the 21.8 million Fannie Mae and Freddie Mac loans serviced by national banks or thrifts were at least days 30 days late, in foreclosure or subject to bankruptcy, compared with 3.2 percent a year earlier.
The report covers the performance of 34 million loans totaling $6 trillion, the agencies said.
The report, based on data from loan servicing companies that manage 64 percent of all first-lien U.S. mortgages, shows:OCC and OTS Mortgage Metrics ReportData also showed a continuing emphasis on preventing avoidable foreclosures to keep families in homes and mitigate losses, as servicers continued to implement more home retention actions (loan modifications and payment plans) than home forfeiture actions (foreclosures, short sales, and deed-in-lieu-of-foreclosure actions). Prime borrowers received about twice as many home retention actions as home forfeiture actions, while subprime borrowers received more than seven times as many.
- The number of loan modifications significantly increased. During the quarter, servicers implemented 185,156 new loan modifications, up 55 percent from the previous quarter and 172 percent from the first quarter of 2008.
- The proportion of payment-reducing modifications also increased. More than half of the modifications in the first quarter of 2009 resulted in lower monthly principal and interest payments, as servicers focused on achieving more sustainable mortgage payments. Modifications that reduced monthly payments by 20 percent or more jumped 19 percent from the previous quarter, to 29 percent of all modifications. By contrast, actions that resulted in increased payments constituted only 19 percent of modifications, a drop of 25 percent from the previous quarter.
- Modifications that reduce payments have lower delinquency rates over time. Although delinquencies on modified loans increased each month following modification, delinquency rates were considerably lower for mortgages in which monthly payments were reduced. Six months after modification, only 24 percent of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due, compared with 54 percent of mortgages with monthly payments left unchanged, and 50 percent with higher monthly payments.
- Seriously delinquent mortgages increased. Seriously delinquent mortgages (60 or more days past due or involving delinquent bankrupt borrowers) increased as economic pressures continued to weigh on homeowners. Prime mortgages, which represented two-thirds of all mortgages in the portfolio, had the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages.
- Foreclosures in process increased. Foreclosures in process also increased during the quarter to 844,389, or about 2.5 percent of all serviced loans, as moratoriums on foreclosures expired during the first quarter. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008.
The report covers the performance of 34 million loans totaling more than $6 trillion in principal balances from the beginning of 2008 through the end of the first quarter of 2009. The impact of the increase in modifications, particularly those with reduced monthly payments, will be seen only in future data.
Home Retention Actions: Loan Modifications and Payment PlansDamning Report
Increased emphasis on loan modifications drove an overall increase in home retention actions, as shown in the table below. Newly initiated loan modifications reached 185,156 during the quarter� rising by 55.3 percent from the previous quarter and 172.3 percent from the first quarter of 2008. The impact of this increase in modifications on reducing foreclosures and enabling borrowers to remain current on their loans will only be seen in future data. Likewise, modification data through the first quarter do not reflect the impact of the Administration�s �Making Home Affordable� program, which was announced in March and began to be implemented after this reporting period.
Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans, as servicers focused on achieving more sustainable mortgage payments. The percentage of modifications that reduced payments by 20 percent or more increased to 29.3 percent of all modifications made in the first quarter of 2009, up 19.2 percent from the previous quarter. Modifications that increased monthly payments declined to 18.5 percent of all modifications during the quarter, down from 25 percent in the fourth quarter and 33.5 percent in the third quarter. Actions that left payments unchanged increased slightly to 27.3 percent.
New to this report are data on the types of actions taken to modify loans. Nearly two-thirds of modifications were �combination modifications� that involved two or more changes to the terms of the loan. Capitalization of delinquent interest, fees, and advances, combined with interest rate reductions and extended maturities were the predominant combination of modifications made during the first quarter. Interest rate and payment freezes, principal reductions, and principal deferrals were less prevalent. Of the 185,156 mortgages that were modified in the first quarter of 2009, 70.2 percent included a capitalization of missed payments and fees, 63.2 percent reduced the interest rate, and 25.1 included an extended term. By comparison, 12.6 percent of the mortgages received modifications that froze the interest rate, 1.8 percent included a reduction of principal, and 1.1 percent included a deferral of principal.
Status of Loans Modifications as of March 31, 2009
Re-Default Rate for 2008 Modifications
Re-Default Rates for Portfolio Loans and Loans Serviced for Others
Overall Mortgage Portfolio
Portfolio Composition
(Percent of All Mortgage Loans in the Portfolio) First Quarter 2009
Corn plunged by the Chicago Board of Trade�s limit after a government report showed U.S. farmers planted more acreage with the grain than estimated in March. Wheat and soybeans also tumbled on signs of increasing supplies.Corn Futures Daily Chart
Corn futures for December delivery dropped by the maximum of 30 cents, or 7.6 percent, to $3.6725 a bushel at 11:02 a.m. on the CBOT. The price headed for the fourth straight quarterly slide.
The U.S. corn report showed �an awfully big acreage number and suggests inventories will be more comfortable,� said Tim Emslie, a research manager at Country Hedging Inc. in Inner Grove Heights, Minnesota.
The U.S. is the world�s largest exporter of corn, soybeans and wheat. Corn is the nation�s biggest crop, valued at $47.4 billion in 2008, followed by soybeans, hay and wheat, government figures show.
Soybean futures for November delivery fell 22 cents, or 2.2 percent, to $9.615 a bushel. Earlier, the price touched $9.435, the lowest since April 1.
U.S. farmers will sow a record 77.483 million acres with the oilseed, up 2.3 percent from 75.718 million last year, the USDA said. In March, the agency said farmers intended to plant 76.024 million acres.
Wheat futures for July delivery tumbled 18.25 cents, or 3.5 percent, to $5.0975 a bushel. The price earlier touched $4.9575, the lowest since Dec. 12.
About 13.77 million acres were seeded with spring wheat, the USDA said. That topped the 13 million projected by analysts surveyed by Bloomberg News last week. Total inventories on June 1 were 667 million bushels, doubling from a year earlier.
Cattle and hog futures rallied today as the crop reports signaled lower costs for livestock feed.
�This is a great day for the cattle and hog producer and the dairyman,� Basse said. �Corn, soybeans and wheat all made their seasonal highs earlier this month. Given favorable weather for the remainder of the growing season, we should have a breathable cushion of inventories.�
The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.US First Quarter GDP Dropped At 5.5%
Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.
Bank of England Governor Mervyn King said last week that Britain�s recovery from recession may turn out to be �a long, hard slog.�
The U.K.�s GDP will probably fall 4.3 percent this year, the Organization for Economic Cooperation and Development said in a June 24 report. That compares with a 4.8 percent drop in the euro area and a 2.8 percent decline in the U.S.
The Bank of England is pumping newly created money into the financial system and keeping its benchmark interest rate at a record low of 0.5 percent to fight the recession.
Still, King said June 24 that problems in the banking system mean the recovery is �uncertain� and policy maker Kate Barker said the same day that Britain�s housing market was �still some way away from normal.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 5.5 percent in the first quarter of 2009,(that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.The 2.8% GDP contraction estimate for the US looks a little optimistic but there are so many give-away programs and government spending that perhaps they the NBER will be declaring the end of this recession later this year. If so it will be nothing to get excited over.
The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, equipment and software, private inventory investment, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.
The smaller decrease in real GDP in the first quarter than in the fourth primarily reflected an upturn in PCE and a larger decrease in imports that were partly offset by larger decreases in private inventory investment and in nonresidential structures.
