Credit Bubble: Mortgage Crisis Spreads to Other Consumer Debt


It’s not just sub-prime first mortgage borrowers who are falling behind in their payments. Rising delinquency rates are hitting home equity lines of credit, car loans and credit cards. These borrowers have good credit and were thought to be the bulwark against the sub-prime borrower risk. In the parlance of the day, we are in a credit bubble.

About 5.7 percent of home equity lines of credit were late or in default at the end of 2007, up from 4.5 percent the prior year, according to Moody’s and Equifax.

About 7.1 percent of auto loans were delinquent, up from 6.1 percent. Personal bankruptcy filings are also on the rise.

On February 11, 2008, Fitch Ratings, a debt rating company, reported credit card companies wrote off 5.4 percent of their prime card balances in January, up from 4.3 percent last year.

At the end of September, almost 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association.  This is the highest rate since 1998, when the company starting tracking.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.  That sucks.

Sources and Further Reading:

Mortgage Crisis Spreads Past Subprime Loans (The New York Times)

Mortgage Crisis Spreads Past Subprime loans (cnbc)

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  • SamanthaCherley
    My opinion is that debt consolidation is the most useful things that could be done at the moment. The crisis must be stopped, but at the same time, we have to pump money into the economy as well.
  • The rush in building new homes in the past few years triggered higher number of purchase by speculators and first time home buyers using sub-prime mortgages.
  • Thanks for sharing this information I guess this crisis of mortgages are being solve. Most of them failed and being bankrupt..
  • Yes a lot has changed as jeremy says above it has everyone on edge at the moment. It will keep changing and who knows how everything will be in a couple of years from now. There's alot of crises going on in the world especially with mortgages and loans etc. hopefully this will somehow turn over.
  • The current economic climate has everyone on edge, how do you get the finance you want when you don't know what will happen next week. Anyone have the crystal ball?
  • Joseph -
    I think the statistics quoting are to be expected, ecspecially considering the season and the recent housing collapse...those who are getting killed on their mortgage payments are going to face the same hardships in paying off other loans.

    Also, have you seen the free foreclosure ebook put out by eHomeAssure? I got a mailing for it the other day and they are toting it as the 'bible' for avoiding home foreclosure. Just interested if you had any thoughts on it. Heres a link for ya: Free Foreclosure Ebook. Wondering if any of these 'housing guru' type tactics are actually feasible ...
    Nick
  • There is something wrong when credit card companies raise rates on card holders.. even those in good standing... to astronomical rates.. then complain that people stop paying.. I'm missing the logic here..
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