Consumer credit ‘contagion’
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Maybe it was only a matter of time before some consumers’ inability to pay their mortgages extended to their credit card debt. But this afternoon, big credit-card issuer Capital One Financial Corp. says it has boosted its estimates for credit losses next year in part because of a higher rate of delinquency on its cards as well as the housing slump.
Why we care? It’s a prime example of the malaise in the mortgage market starting to spread to credit-card and auto loans in what one analyst has dubbed consumer credit ‘contagion,’ according to an AP report.
And it’s an ominous warning sign for the economy.
Capital One is just the latest financial company whose results are flagging because of the continued turmoil in the nation’s credit markets.
Also today, Pasadena-based Indymac Bank joined the ranks of troubled mortgage companies and posted a bigger-than-expected third-quarter loss. In fact, at $202.7 million, or $2.77 a share, the loss was six times bigger than most analysts were counting on.
‘While this loss is substantially higher than we had been forecasting, it was clearly not unexpected given the magnitude of the losses being reported by others in the industry and the recent decline in our stock price,’ said Michael Perry, IndyMac’s chief executive. ‘No one in the mortgage industry came away unscathed in the quarter.’
Another troublesome economic indicator: Freddie Mac reports that the amount of home equity ‘cashed out’ in loan refinancings declined in the third quarter to its lowest level in two and a half years. The giant mortgage purchaser credits tighter lending requirements and the weak housing market curtailing borrowers’ ability to get new loans. In the quarter, $60.1 billion was cashed out, down 26% from the second quarter.
Economists have pointed to cash-outs in recent years as the fuel behind economic growth as homeowners used their equity to spend on such things as remodeling jobs and new cars. Quarterly cash-out refinancing peaked at $83.5 billion in the second quarter of 2006.
How low can it go?
--Posted by guest blogger Annette Haddad