Delinquency Rates On the Rise

[EV_Ares]

Unable to tap home equity, strapped consumers are using plastic. Trouble is, many are having trouble making monthly payments.

After a gloomy holiday season hobbled by rising unemployment and fears of a recession, the bad news just keeps coming for cash-strapped consumers. Rates of delinquency for credit-card holders rose in November, according to a study by RiskMetrics Group, a financial research organization. That's a sign that cardholders were even then scrambling to make monthly payments. "The slowing economy is probably the biggest driver of these rising delinquency rates," says Michael Englund, chief economist for Action Economics.

The pressure on consumers isn't likely to let up anytime soon. Goldman Sachs (GS) said on Jan. 9 it expects a recession this year, as the housing slump and credit market turmoil spill over into the broader economy. The investment house sees the Federal Reserve lowering rates to 2.50% this year from the current 4.25%.

RiskMetrics' study offers a glimpse into how consumers are faring in that slowing economy. It covers a period when shoppers were just starting to ramp up their holiday shopping. And because home prices are falling, many of them were unable to tap into their home equity for additional funds as they might have in recent years.

Which Trusts Suffered Most?
The number of credit accounts that were 60 days delinquent, or had been charged off already, increased in November from the previous month, according to RiskMetrics. More important, though, the survey found the pace of deterioration had increased from previous months.

The survey reflected delinquency rates and charge-offs on accounts held by 15 large credit-card master trusts, which are bundles of securitized credit-card receivables for cards issued by banks and retailers including Capital One (COF), Chase (JPM), and Target (TGT). The trusts that saw the most battering from last January to November were Target and Capital One. Capital One's master trust had charge-offs of 4.51%, up from 3.16% in November, 2006.


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