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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Delinquencies On Home-Equity Loans, Credit Cards Hit Historic Levels

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.

-- Frank Ahrens
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By Frank Ahrens  |  July 7, 2009; 12:31 PM ET
Categories:  The Ticker  | Tags: credit cards, home equity loans  
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Comments

And there are still people out there saying the situation our economy is in was the last administration's "fault".

No way. We the people knew each time we used a credit card or the house to pay for things we could not afford and most often did not really need. We have no one to blame but ourselves. Now we need to realize and face the facts, learn, suffer while we pay back, then hopefully act like adults in future.

It will be as difficult as it was easy to get where we are. How sad because not everyone wasted and showed off but all will have to pay.

Posted by: sally62 | July 7, 2009 1:34 PM | Report abuse

These companies raise rate for their customers, resort to all sorts of fraudulent and crooked dealings and we supposed to be surprised that the delinquency rates are at an all time high? My credit card company, refused to take my payment last month. I have paid them, each and every month, at my bank. An electronic transfer of funds from my checking account. I have never been late. Last month, however, these crooked swine, without telling anyone, decided to not accept payment like that... so I was late, delinquent. Instead of calling for the arrest of subhuman vermin like this , instead of calling for investigations and criminal trials and prison, the Post write inane pieces like this. The reason for *all*, as in 100%, of the financial services industry lies squarely with them. Regulate the snot out of them, because they are predators and criminals.

Posted by: mibrooks27 | July 7, 2009 2:09 PM | Report abuse

Another, really - really bad day for the DEMOCRUDS.

Posted by: hclark1 | July 7, 2009 7:21 PM | Report abuse

Great, now we get to bail out another group of over spenders with our tax dollars.

Why didn't someone tell me 10 years ago that reckless spending beyond my means, and skipping out on loans and credit card bills would work to my favor?

My parents have since passed on, but when we meet again, we're going to have a serious talk about this "accountability and living within our means" crap.

I was laid off from my job seven months ago and now working temp and contract jobs, earning $20K less than last year, so I can tighten my belt and ensure my bills are paid on time. WHY?

Posted by: asmith1 | July 7, 2009 8:26 PM | Report abuse

I think that Mibrooks27 has the story right. And Simon Johnson is also right to emphasize how the banking industry has managed to dominate our political machinery to the point that it can afford to make enemies on a large scale and still do what they do without negative consequence.

I fear the fate of regulation. Look at what happened with the laws against e-mail spam and telemarketers calling. I'm on all the do-not-call lists, and I get spam and telemarketing calls, several every day. And from companies like Verizon and, today, the Washington Post!

Yes, the Washington Post is using telemarketers to call people on the "do not call" list. I'm sure they will deny it, but it happened today.

So, is supposedly law-abiding corporations thumb their noses at the law, why do we expect regulation of the banking and financial services industry to have ANY meaningful effect.

Our government should be there to protect us. Where is our government? It's in on the act!

Posted by: dorofacol | July 7, 2009 9:16 PM | Report abuse

There will likely be more debt defaults... this is a result of what could be likened to a corporate war on consumers:

1) Banks signing mortgages for anyone, increases demand, increases prices, and they make more money by selling obscure securities to investors. With the price of homes too high, those that can pay their mortgage basically guarantee giving more money over 30 years than they should have gotten in a "normal" market. First mortgage principals should all have been corrected!

2) Pharmaceutical companies, like Bayer, were found to be paying generic pharma companies from selling their products. This provides further high-profit for name-products, makes money for generics for not selling anything, and increases costs to the consumer.

3) Corporate-sponsored lobbyists are taking away any representation any voter may have had by "educating" "our" congressfolk. This guarantees continued profits in place of what we want from our government. Currently, their target is health insurance, which I believe the "public option" should be mandatory, and private insurance should be optional. This avoids adverse selection, where all of those needing care would be forced out of any private insurance and into the "public option," which would kill it quickly. Everyone needs to be in one pool, and it is as simple as that. Taxing health benefits will only increase the costs to the employer with no benefit.

Thomas Jefferson in 1812 provides "I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

We failed to keep them contained, and now corporations are writing the laws.

4) Corporations are shipping everyone's job overseas. Their faulty logic fails when there is no one making any money to buy anything. Want to work in Bangalore at a local salary? http://money.cnn.com/2009/02/05/news/companies/ibm_jobs/

Welcome to the United Corporations of America!

Posted by: plantiful | July 7, 2009 9:45 PM | Report abuse

UN-employment is only the tip of the iceberg. Could you perform this analysis and reduce employment (and spending) by another 20%, 40% even 50% for all those that are now still at one job but only taking home 2 1/2, 3 or 4 days' pay each week. Make a new measure, call it the "Underemployment Rate" and see what it tells you! I think you'll see that the 9+% unemployment rate isn't covering the problem.

Posted by: Sherwoody1 | July 7, 2009 9:54 PM | Report abuse

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