Credit Crunch - I am just amazed at this stunt.. Oh yea other family news shared too

[taffy19 Gold Contributor Find all posts View Profile Close taffy19]

I guess I will share here that my wife and I are expecting a new addition to the family come next April. The new baby is a boy so I will have two kids to a previous marage (Girl that is 11 and Boy that is 8) plus a 4-year old girl with my current wife.

Congratulations with a new addition to the family. Now you will have a boy and a girl. A perfect family but I hope that they don't have to clean up our financial mess that we are leaving them.

[katiemack Super Moderator Find all posts View Profile Close katiemack]

This has been an interesting read.

Congrats Ken, I wish you and your wife a wonderful experience....I know the older kids are excited and looking forward to the new baby too...and even though the thread seems to be about CC crunch....I think the most important thing is that in the midst of all these mundane things like credit and bills, LIFE is still daring to break free!

We are each so much more than all these headlines, these times....I wish you all the best!

Enjoy this time of anticipation, fill the house with all the excitement and love possible, and let the "stuff" float past....LIVE, LOVE, LAUGH.

[jackio Gold Contributor Find all posts View Profile Close jackio]

Congratulations on your new blessing!

[gophish Super Moderator Find all posts View Profile Close gophish]

Congrats Ken. Enjoy life!!

[StressCadet Senior Member Find all posts View Profile Close StressCadet]

Guess I will put my 2 cents in - Loan Officer by day - vacation planner/dreamer by night!

Yes, as an industry we are not lending like we were over the past couple of years. But.....IMO, that is good. There was alot of crazy lending going on - giving credit cards, home equities, mortgages to people that really were not financially sound.

I see people almost everyday that have over $50,000 in credit card debt - it doesn't shock me anymore. The average person - if they added up all their "available credit lines" definately has more than $50,000 available to them. Let's face it - that is WAY too much. So, the credit card companies are starting to cut them down - because with unemployment numbers running high (and forcasting for higher ones) people will start to use their cards for expenses and start to pile on the debt which is very hard to get rid of once it is there.

As for home equity line of credits - yes, banks are shutting them down to. But, from what I have seen so far it is only on LOCs that had high Loan to Values to begin with. 3 years ago a house might have been worth $350,000. A homeowner might have had a $250,000 first mortgage and then added a $100,000 LOC. Well now - that hous might only be worth $300,000. The bank needs to cut that line down - because if it is drawn on in full - the homeowner will be completely upside down. (this is done alot now. A consumer can't sell their house - they use up all the equity line to buy another house - then let the original go into foreclosure). This way they get the new house before their credit is ruined.

Please know......as an industry we are still lending! But not crazily anymore...and that is a good thing.

This is an excellent post. I used to be you-LOL! Loan officer by day/vacation planner by night.

Ironically, when this thread began-I added up all my limits/available credit on my CC's and was shocked to see the total amount. What are they thinking?? I would never charge to the limits-but I can see where families who are at risk of losing their homes,etc. could tap in in to what was available just to survive. Sadly, there will be much of this and the CC companies are just trying to head off losses. Don't know that I blame them.

A strong statement-but we all might have to learn to live within our means. Does that mean I can't buy any more timeshares....

[mpizza Senior Member Find all posts View Profile Close mpizza]

Congratulations on your new addition! My 2 month old grandaughter giggled for the first time yesterday - priceless!

Maria

[3kids4me Super Moderator and Super Mom Find all posts View Profile Close 3kids4me]

A strong statement-but we all might have to learn to live within our means. Does that mean I can't buy any more timeshares....

I know you were kidding a bit, but there are plenty of people out there that were living within their means and have now been affected. They may have lost their jobs, or had their salary dramatically and unexpectedly decreased (this is affecting many professions that are heavily based on either bonus or commission). Others may have indeed taken out a HELOC, say, to put an addition on their house, and in the middle of construction found out their line was frozen and they couldn't draw the full amount approved. (I know one person this happened to...it was hard for me to empathize at first since we're talking about a home addition here...but seeing her house with open air walls and framing and realizing all work had to stop...pretty unsettling for her.) Others have used lines when they couldn't work due to the illness of a spouse or family member.

I'm sure there are some irresponsible people out there who have racked up thousands in credit card debt, but what I'm seeing around here are responsible, professional people who have lost jobs or significant income and are now struggling to figure out a way to cover the shortage this year without having any kind of HELOC to draw on. I see people liquidating their IRAs and their kids' college funds, and some people that don't have these things to liquidate. For those people, living within their means to the point where they would not be affected by a job loss means they would have had to have no mortgage/health care bills/etc.

The super rich are the least affected, of course.

I find the whole thing very frightening.

On a lighter note...Ken...Congratulations!!!

[GeoPatSK Senior Member Find all posts View Profile Close GeoPatSK]

A week ago the Wall Street Journal ran a story about how American Express has started reducing the credit limit, even on those who do not carry a balance.

Delinquencies Mount for American Express - WSJ.com

[x3skier Senior Member Find all posts View Profile Close x3skier]

Guess I will put my 2 cents in - Loan Officer by day - vacation planner/dreamer by night!

Please know......as an industry we are still lending! But not crazily anymore...and that is a good thing.

Glad to hear it and as the Sage of Omaha (and a lot of others) allegedly said, "Never buy anything you don't understand". Seems to me if more people, both lenders and borrowers, would have followed this advice, the "Credit Crunch" would have been a lot less traumatic. Probably not totally avoided but less of an impact.

Out here in Flyover Country, I have 2 credit cards and one charge card (AMEX) I pay off every month. Have no idea what the credit line is and since I don't buy anything on a credit card I can not afford to pay for, seems to work for me. I am sure the two credit cards have a limit but the AMEX does not seem to have any that I know of.

If I make a major purchase for the house like the new siding we had installed last year, it comes from savings or a HELOC and gets paid off PDQ.

Life is good.

Cheers

[mdurette Senior Member Find all posts View Profile Close mdurette]

"Others have used lines when they couldn't work due to the illness of a spouse or family member."

This is something I recommend for people who I can see are financially responsible. Have a HELOC on your house at all times to use in these cases of emergency - sickness, loss of income, etc. It is NOT the ideal way - but if you are out of work and need some cash to get by with the day to day expenses then it is there to help.....better than credit cards, because of the lower rate and the possibility of a tax deduction. Always need to keep in mind that it is your house on the line and you can't just walk away from it. (again - why I recommend it only for financially responsible people).

One thing to note - these lines need to be established before the emergency happens - because once the income is gone - it would be hard to get one.

[somerville Senior Member Find all posts View Profile Close somerville]

Congratulations on the new baby.

[bnoble Senior Member Find all posts View Profile Close bnoble]

NY Times ran an article in today's paper on this very issue, as well:

http://www.nytimes.com/2008/10/29/bu...prod=permalink

Maybe I'll stop getting those incessant Capital One mailers.

[Guest Close Quarterbore]

NY Times ran an article in today's paper on this very issue, as well:

http://www.nytimes.com/2008/10/29/bu...prod=permalink

Maybe I'll stop getting those incessant Capital One mailers.

I have a Bank Of America Card too... I wonder if they are next?

October 29, 2008
Consumers Feel the Next Crisis: It’s Credit Cards
By ERIC DASH
First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards. The Treasury Department, which is spending billions of dollars in taxpayer money to clean up an economic mess brought on in part by all sorts of easy credit, recently started an advertising campaign inviting consumers to check into the “Bad Credit Hotel,” an online game that teaches the basics of maintaining good credit.

At the same time, the fear factor among lenders has deepened just as the crisis makes it harder for some financially stretched consumers to wean themselves from credit cards for even basic needs, like gas and food.

“We are not going to say, ‘Yahoo, this is over,’ and extend credit like we did without fear,” Jamie Dimon, JPMorgan Chase’s chief executive, said in a recent conference call. “If you’re not fearful, you’re crazy.”

Even those with good credit ratings are not excepted. American Express, which traditionally catered to more upscale cardholders, said it would be increasing effective interest rates by 2 or 3 percentage points for some of its credit card holders — a move that could, for example, push a 15 percent rate up to 18 percent.

“We think it’s prudent given the nature of those products and the economic environment we face,” Daniel Henry, its chief financial officer, said in a recent conference call.

Some reward programs have also gotten stingier as lenders cut corners to save money. Card companies, for example, have taken to substituting cheaper brands for a Sony big-screen television as a way of lowering the cost of their redemption prizes.

For less creditworthy customers, issuers are pulling back on promotional offers that allowed borrowers to pay no interest for months as they try to get ahead of stiffer lending rules that have been proposed by federal banking regulators and Congress.

The regulations, while beneficial to consumers, will curb profits on card issuers’ riskiest customers. JPMorgan said that it was withdrawing some teaser-rate loans that were only marginally profitable. Discover Financial shortened the duration of its zero-balance offers.

And lenders, over all, are slowing the flood of mail offers to a trickle with moves that would translate for the average American household into about 13 fewer pieces of credit card junk mail a year than its peak in 2005. Mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004, according to Mintel Comperemedia, a direct marketing research firm.

Online credit card applications have fallen for the first time in five quarters, in part because customers are receiving fewer mail offers that drive them to the Web, according to data from comScore, an Internet marketing research firm.

“We used to get a couple of offers a week, but I haven’t seen a credit card offer in over a year,” said Brett Barry, who owns a real estate agency outside Phoenix and described his credit record as strong. “What blows me away is these companies are in the business of extending credit, but they don’t want to do it for me.”

Mr. Barry said that, without any notice, American Express had reduced the credit limit on his business and personal credit card at least four times in the last year, which he said had lowered his credit score. The moves have also made it difficult for him to manage his payroll and budget, he said.

“Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back,” said Lisa Hronek, a research analyst at Mintel. “People are completely maxed out with mortgages, home equity lines and credit card debt.”

At the same time, credit card profit margins have been narrowing, largely because lenders’ own financing costs remain elevated as investors spurn credit card bonds, just as they did mortgages. Another factor is that the interest rates banks charge even creditworthy borrowers have come down after the emergency actions taken by the Federal Reserve to ease the credit crisis.

Meanwhile, bank executives say consumers are starting to curb their spending, to an extent that may become clearer Wednesday when Visa reports its third-quarter results.

In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver.

“The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly,” a Morgan Stanley analyst, Betsy Graseck, said. “There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave.”

Copyright 2008 The New York Times Company

[ArtsieAng Super Moderator Find all posts View Profile Close ArtsieAng]

Ken

I have a Bank Of America Card too... I wonder if they are next?

Yeah, me too.....I have business, and personal accounts, along with credit cards for me, DH & DD. I hope they don't cut back on my credit limit for my business.

[Guest Close Quarterbore]

Yeah, me too.....I have business, and personal accounts, along with credit cards for me, DH & DD. I hope they don't cut back on my credit limit for my business.

Both of the cards I had reduced were business cards fwiw

My Bank of America card is a personal card (I have no other Business Cards beyond the two they snipped).