Friday, May 29, 2009
Thursday, May 28, 2009
About 12 percent of U.S. homeowners late paying or foreclosed
Thu May 28, 2009 1:17pm EDT
By Lynn Adler
NEW YORK (Reuters) - One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year. "We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview. The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates. Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent. "The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers." A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis. Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group. Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter. "It's an important reminder that just because the housing market was one of the causes of recession ... it won't be the first sector of the economy to return to normal," said Jed Kolko, associate director of research at the Public Policy Institute of California in San Francisco. Federal mortgage modification and refinance programs will keep delinquencies and foreclosures from spiking even more than they would otherwise, housing analysts said. "Even if the recession officially ended soon, in the sense of GDP turning positive again, the continued rising unemployment rate and the re-set of existing adjustable-rate mortgages would continue to aggravate both foreclosures and delinquencies," Kolko said. The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier. California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts. Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards. "Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said. When a house is "under water," its price has fallen below the size of the mortgage. Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes. Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans. The freezes artificially tempered new foreclosures before federal loan modification programs took root. But loans that had already been modified often re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, he added. Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said. On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent. The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.
By Lynn Adler
NEW YORK (Reuters) - One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year. "We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview. The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates. Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent. "The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers." A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis. Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group. Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter. "It's an important reminder that just because the housing market was one of the causes of recession ... it won't be the first sector of the economy to return to normal," said Jed Kolko, associate director of research at the Public Policy Institute of California in San Francisco. Federal mortgage modification and refinance programs will keep delinquencies and foreclosures from spiking even more than they would otherwise, housing analysts said. "Even if the recession officially ended soon, in the sense of GDP turning positive again, the continued rising unemployment rate and the re-set of existing adjustable-rate mortgages would continue to aggravate both foreclosures and delinquencies," Kolko said. The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier. California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts. Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards. "Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said. When a house is "under water," its price has fallen below the size of the mortgage. Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes. Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans. The freezes artificially tempered new foreclosures before federal loan modification programs took root. But loans that had already been modified often re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, he added. Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said. On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent. The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.
U.S. Inflation to Approach Zimbabwe Level, Faber Says
By Chen Shiyin and Bernard Lo
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said. Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office. “I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices. “There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.” Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.
Near Zero
The U.S.’s main interest rate may need to stay near zero for several years given the recession’s depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday.
Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years. The global economy won’t return to the “prosperity” of 2006 and 2007 even as it rebounds from a recession, Faber said. Equities in the U.S. won’t fall to new lows, helped by increased money supply, he said. Still, global stocks are “rather overbought” and are “not cheap,” Faber added. Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. “Of all the regions in the world, Asia is still the most attractive by far,” he said.
Gloom, Doom
Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poor’s 500 Index has since climbed 9 percent. Faber, who said he’s adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $949.85 an ounce at 12:50 p.m. Hong Kong time. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloombeg.net Last Updated: May 27, 2009 00:54 EDT
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said. Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office. “I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices. “There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.” Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.
Near Zero
The U.S.’s main interest rate may need to stay near zero for several years given the recession’s depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday.
Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years. The global economy won’t return to the “prosperity” of 2006 and 2007 even as it rebounds from a recession, Faber said. Equities in the U.S. won’t fall to new lows, helped by increased money supply, he said. Still, global stocks are “rather overbought” and are “not cheap,” Faber added. Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. “Of all the regions in the world, Asia is still the most attractive by far,” he said.
Gloom, Doom
Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poor’s 500 Index has since climbed 9 percent. Faber, who said he’s adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $949.85 an ounce at 12:50 p.m. Hong Kong time. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloombeg.net Last Updated: May 27, 2009 00:54 EDT
Saturday, May 16, 2009
Europe in deepest recession since War as Germany suffers
German economic policy is "bankrupt", economists have said.
By Edmund Conway and Angela Monaghan
The Telegraph, 15 May 2009
The declaration was made as it emerged that Europe's biggest economy has now suffered a worse "lost decade" than Japan and is deeper in recession than any other major economy. On a day of dismal news for the European economy, official figures also showed that Italy, Austria, Spain and the Netherlands are facing their biggest combined slump in post-war history, sparking warnings about the potential for social unrest throughout Europe.
IMF warns over parallels to Great Depression
G20 summit: tensions high following talks to find global recession dealWithin hours, the managing director of the International Monetary Fund (IMF) warned that the global recession is far from over and that people must prepare themselves for more financial shocks. Dominique Strauss-Kahn said the world remains in the grips of a "Great Recession" and played down talk of "green shoots". Germany's economy shrank by 3.8pc in the first three months of the year - a record contraction that is almost double the fall of Britain's gross domestic product in the first quarter. The figures sparked attacks on Germany's government, which has repeatedly shown reluctance to bail out either its economy or financial system.
In figures described by economists as "disastrous", Eurostat also reported that Italy shrank by 2.4pc, Austria and the Netherlands by 2.8pc, Spain by 1.8pc and France by 1.2pc. The statistics underline the fact that although Britain's financial system was badly hit in the early months of the crisis, the UK's economy has not fared as badly as its continental rivals, contracting by 1.9pc in the first quarter. The sharp German contraction - the worst since the Second World War - follows news that the bill for bailing out its economy is likely to exceed the cost of re-unification in the years of austerity after the fall of the Berlin Wall. Economists said that the country's reluctance to move quickly to cut taxes and raise spending was largely to blame. The export-reliant country has been hit hard as world trade nose-dived in the latter months of last year. Charles Dumas of Lombard Street Research said: "German economic policy is bankrupt, and the Mediterranean countries stuck in EMU are also condemned to ongoing economic collapse.
"Already we have real GDP levels that are up only about 3pc from 2000 in Germany and Italy – ie growth has been only a little over ¼pc a year – making this a lost decade for much of continental Europe on a worse scale than Japan in the 1990s." Mr Strauss-Kahn, who was speaking in Vienna, said that although there were early signs of improvement in some of the economic surveys, the global downturn is not finished, with more financial shocks likely. "This crisis is not yet over, and there will, in all likelihood, be further tests ahead," he said. However, Mr Strauss-Kahn said the global economy would "almost certainly" avoid a crisis as severe of the 1930s Great Depression because of the co-ordinated action taken by world leaders. "World leaders embraced multilateralism, and are reaping the rewards. Vehicles like the G20 were used to coordinate policies and deliver a unified message," he said. The IMF has called for a global fiscal stimulus equal to 2pc of the world's gross domestic product.
By Edmund Conway and Angela Monaghan
The Telegraph, 15 May 2009
The declaration was made as it emerged that Europe's biggest economy has now suffered a worse "lost decade" than Japan and is deeper in recession than any other major economy. On a day of dismal news for the European economy, official figures also showed that Italy, Austria, Spain and the Netherlands are facing their biggest combined slump in post-war history, sparking warnings about the potential for social unrest throughout Europe.
IMF warns over parallels to Great Depression
G20 summit: tensions high following talks to find global recession dealWithin hours, the managing director of the International Monetary Fund (IMF) warned that the global recession is far from over and that people must prepare themselves for more financial shocks. Dominique Strauss-Kahn said the world remains in the grips of a "Great Recession" and played down talk of "green shoots". Germany's economy shrank by 3.8pc in the first three months of the year - a record contraction that is almost double the fall of Britain's gross domestic product in the first quarter. The figures sparked attacks on Germany's government, which has repeatedly shown reluctance to bail out either its economy or financial system.
In figures described by economists as "disastrous", Eurostat also reported that Italy shrank by 2.4pc, Austria and the Netherlands by 2.8pc, Spain by 1.8pc and France by 1.2pc. The statistics underline the fact that although Britain's financial system was badly hit in the early months of the crisis, the UK's economy has not fared as badly as its continental rivals, contracting by 1.9pc in the first quarter. The sharp German contraction - the worst since the Second World War - follows news that the bill for bailing out its economy is likely to exceed the cost of re-unification in the years of austerity after the fall of the Berlin Wall. Economists said that the country's reluctance to move quickly to cut taxes and raise spending was largely to blame. The export-reliant country has been hit hard as world trade nose-dived in the latter months of last year. Charles Dumas of Lombard Street Research said: "German economic policy is bankrupt, and the Mediterranean countries stuck in EMU are also condemned to ongoing economic collapse.
"Already we have real GDP levels that are up only about 3pc from 2000 in Germany and Italy – ie growth has been only a little over ¼pc a year – making this a lost decade for much of continental Europe on a worse scale than Japan in the 1990s." Mr Strauss-Kahn, who was speaking in Vienna, said that although there were early signs of improvement in some of the economic surveys, the global downturn is not finished, with more financial shocks likely. "This crisis is not yet over, and there will, in all likelihood, be further tests ahead," he said. However, Mr Strauss-Kahn said the global economy would "almost certainly" avoid a crisis as severe of the 1930s Great Depression because of the co-ordinated action taken by world leaders. "World leaders embraced multilateralism, and are reaping the rewards. Vehicles like the G20 were used to coordinate policies and deliver a unified message," he said. The IMF has called for a global fiscal stimulus equal to 2pc of the world's gross domestic product.
Obama Says U.S. Long-Term Debt Load ‘Unsustainable’
By Roger Runningen and Hans Nichols
May 14 (Bloomberg) -- President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries. “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.” Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”
Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously. Two weeks ago, the president proposed $17 billion in budget cuts, with plans to eliminate or reduce 121 federal programs. Republicans ridiculed the amount, saying that it represented one-half of 1 percent of the entire budget. They noted that Obama is seeking an $81 billion increase in other spending.
Entitlement Programs
In his New Mexico appearance, the president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare. He also said he was confident that the House and Senate would pass health-care overhaul bills by August. “Most of what is driving us into debt is health care, so we have to drive down costs,” he said. Obama prodded Congress to pass restrictions on credit-card issuers, saying consumers need “strong and reliable” protection from unfair practices and hidden fees. “It’s time for reform that’s built on transparency, accountability, and mutual responsibility, values fundamental to the new foundation we seek to build for our economy,” the president said. Obama called on Congress to send to him by May 25 a bill that would clamp down on what he says are sudden rate increases, unfair penalties and hidden fees. He also wants the measure to strengthen monitoring of credit-card companies.
House Bill
The U.S. House of Representatives passed the credit-card bill last month after adding a provision requiring banks to apply consumers’ payments to balances with the highest interest rates first. The bill also imposes limits on card interest rates and fees. The Senate continued debating its version of the bill today. It would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. The president said Americans have been hooked on their credit cards and share some blame for the current system. “We have been complicit in these problems,” he said. “We have to change how we operate. These practices have only grown worse in the midst of this recession.” The American Bankers Association, which represents card issuers, has warned lawmakers and the Obama administration against taking punitive action or setting requirements that are too stringent. Doing so, the lobby group says, would limit consumer credit and worsen a credit crunch. Obama said that restrictions “shouldn’t diminish consumers’ access to credit.”
Uncollectible Debt
Uncollectible credit-card debt rose to 8.82 percent in February, the most in the 20 years that Moody’s Investors Service Inc. has kept records. Lawmakers have said they’re under increasing pressure from constituents to respond to rising interest rates and abrupt changes to consumers’ accounts. Obama held a White House meeting last month with executives from the credit-card industry, including representatives from Bank of America Corp. and American Express Co. Afterward, he told reporters that credit-card issuers should be prohibited from imposing “unfair” rate increases on consumers and should offer the public credit terms that are easier to understand. “The days of any time, any increase, anything goes -- rate hike, late fees -- that must end,” Obama said today at Rio Rancho High School. We’re going to require clarity and transparency from now on.” He also said the steps he has taken to stimulate the economy and start the debate on overhauling the health-care system are beginning to take effect.
‘Beginning to Turn’
“We’ve got a long way to go before we put this recession behind us,” Obama said. “But we do know that the gears of our economy, our economic engine, are slowly beginning to turn.” Taking questions from the audience, Obama repeated his stance that he wants legislation to overhaul the health-care system finished before the end of the year, saying it is vital to the economy. Health-care costs are driving up the nation’s debt and burdening entitlement programs such as Medicare, the government- run insurance program for those 65 and older and the disabled. The programs’ trustees reported May 13 that the Social Security trust fund will run out of assets in 2037, four years sooner than forecast, and Medicare’s hospital fund will run dry by 2017, two years earlier than predicted a year ago.
May 14 (Bloomberg) -- President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries. “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.” Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”
Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously. Two weeks ago, the president proposed $17 billion in budget cuts, with plans to eliminate or reduce 121 federal programs. Republicans ridiculed the amount, saying that it represented one-half of 1 percent of the entire budget. They noted that Obama is seeking an $81 billion increase in other spending.
Entitlement Programs
In his New Mexico appearance, the president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare. He also said he was confident that the House and Senate would pass health-care overhaul bills by August. “Most of what is driving us into debt is health care, so we have to drive down costs,” he said. Obama prodded Congress to pass restrictions on credit-card issuers, saying consumers need “strong and reliable” protection from unfair practices and hidden fees. “It’s time for reform that’s built on transparency, accountability, and mutual responsibility, values fundamental to the new foundation we seek to build for our economy,” the president said. Obama called on Congress to send to him by May 25 a bill that would clamp down on what he says are sudden rate increases, unfair penalties and hidden fees. He also wants the measure to strengthen monitoring of credit-card companies.
House Bill
The U.S. House of Representatives passed the credit-card bill last month after adding a provision requiring banks to apply consumers’ payments to balances with the highest interest rates first. The bill also imposes limits on card interest rates and fees. The Senate continued debating its version of the bill today. It would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. The president said Americans have been hooked on their credit cards and share some blame for the current system. “We have been complicit in these problems,” he said. “We have to change how we operate. These practices have only grown worse in the midst of this recession.” The American Bankers Association, which represents card issuers, has warned lawmakers and the Obama administration against taking punitive action or setting requirements that are too stringent. Doing so, the lobby group says, would limit consumer credit and worsen a credit crunch. Obama said that restrictions “shouldn’t diminish consumers’ access to credit.”
Uncollectible Debt
Uncollectible credit-card debt rose to 8.82 percent in February, the most in the 20 years that Moody’s Investors Service Inc. has kept records. Lawmakers have said they’re under increasing pressure from constituents to respond to rising interest rates and abrupt changes to consumers’ accounts. Obama held a White House meeting last month with executives from the credit-card industry, including representatives from Bank of America Corp. and American Express Co. Afterward, he told reporters that credit-card issuers should be prohibited from imposing “unfair” rate increases on consumers and should offer the public credit terms that are easier to understand. “The days of any time, any increase, anything goes -- rate hike, late fees -- that must end,” Obama said today at Rio Rancho High School. We’re going to require clarity and transparency from now on.” He also said the steps he has taken to stimulate the economy and start the debate on overhauling the health-care system are beginning to take effect.
‘Beginning to Turn’
“We’ve got a long way to go before we put this recession behind us,” Obama said. “But we do know that the gears of our economy, our economic engine, are slowly beginning to turn.” Taking questions from the audience, Obama repeated his stance that he wants legislation to overhaul the health-care system finished before the end of the year, saying it is vital to the economy. Health-care costs are driving up the nation’s debt and burdening entitlement programs such as Medicare, the government- run insurance program for those 65 and older and the disabled. The programs’ trustees reported May 13 that the Social Security trust fund will run out of assets in 2037, four years sooner than forecast, and Medicare’s hospital fund will run dry by 2017, two years earlier than predicted a year ago.
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