American consumers are defaulting on their credit-card debt much more frequently than last year, suggesting that troubles in the subprime mortgage market might be seeping into other forms of consumer debt, the FT reported Monday. Credit-card companies wrote off 4.58% of payments in H1 2007, nearly 30% more than at the same time last year. Late payments went up and the quarterly payment rate went down -- its first decline in over four years. Moody's attributes the trend in part to the housing slump and a drop in the number of refinancings. "The combination of higher interest rates and a softer real estate market diminished the attractiveness of mortgage refinancings in which many borrowers reduced their more expensive credit-card debt by drawing on the equity in their home," Moody's said. The ratings agency noted, however, that it is unclear whether the people defaulting on their credit cards are the people defaulting on their subprime mortgages. "Consumer credit quality will continue to deteriorate as debt burdens and financial obligations rise, house prices continue to fall, credit standards are tightened, labour markets loosen modestly, and gasoline and other energy prices remain high," said Moody's economist Scott Hoyt.
Sources: Financial Times
Commentary: Citigroup Faces $700M in Credit-Related Losses • Mastercard: Good Time For An Initial Entry? • Consumer Credit Usage Spikes In June: A Sign Of Consumer Spending Strength?
Stocks/ETFs to watch: MA, AXP, MS, BCS, C. ETFs: FPX, IYG, KLD
Earnings call transcript: MasterCard Q2 2007, American Express Q2 2007, Morgan Stanley F2Q07, Barclays plc Q2 2007, Citigroup Q2 2007
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