| Quote of the Month:
"An analysis of data from 14 countries plus the U.S. suggests that the housing market appears to be 'far more important than the stock market in influencing consumption,' both in the U.S. and other countries."
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April 2002
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| Mortgage Delinquencies Down, Perhaps Temporarily? |
| Data for the fourth quarter of 2001 released by the Mortgage Bankers Association (MBA) revealed that 30+ day delinquency rates on residential mortgage loans were down from the third quarter, but foreclosures were up. The proportion of 1-4 family unit residential mortgage loans delinquent 30 days or more was 4.65 percent.
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| Housing Starts Encouraging
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| Data from the National Association of Home Builders provide further evidence that the economy has bottomed out and is on the way to recovery. In an earlier issue of Spotlight we noted that housing starts had slowed in response to the recession that began in March 2001. |
| Housing Prices Sheltered Consumers from Reverse Wealth Effect
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| In prior issues we've noted that much of the consumption boom (and low savings rate) of the late 1990s was driven by rising household wealth resulting from soaring stock markets. The positive wealth effect from rising stock prices all but eliminated the aggregate desire of the household sector to save out of current income. |
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| Credit Scoring School |
| Credit scoring, to put it simply, is a multivariate analysis to assess the statistically significant relationship of a number of independent variables to a dependent variable, in this case, an index or "score" that reflects the probability that a consumer will repay his or her debts as agreed. Credit scoring was developed and continues to be refined by Fair, Isaac & Company (FICO), based in San Rafael, California. |
| Debit Scoring Product |
| Despite the impression conveyed by news media accounts of American's love affair with credit, many adults have little or no credit history. About 30% of lender inquiries to the credit bureau Experian turn up so-called "thin files," or credit histories that are either non-existent or too brief to evaluate with conventional credit scoring tools. |
| Starbuck's Win-Win Strategy |
| Starbuck's has been very successful—so successful in fact that customers have complained about the long lines at the counter. Potential customers were scared off, and some existing customers were discouraged. The answer to the problem was a smart card. |
| Credit and Debit Card Notes |
| • CardForum reports that commercial banks charge-offs rose to $3.5 billion in the fourth quarter of last year, an increase of 26 percent over the same quarter of 2000. The charge-off rate for the quarter rose to 6.26 percent from 4.35 percent in the earlier quarter. |
| E-Commerce Notes |
| • The Web is becoming more of a tool and less of a toy, according to findings of the Pew Internet and American Life Project. As users become more experienced they spend less time online but do more serious kinds of things. |
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| Conference on Consumer Transactions and Credit |
| The Federal Reserve Bank of Philadelphia and the Wharton School of the University of Pennsylvania, in association with the Journal of Financial Intermediation, sponsored a conference on consumer transactions and credit that provided a number of research findings that are relevant to the consumer credit industry. |
| Delinquencies at Commercial Banks |
| The accompanying table shows, not unexpectedly, that between the first and fourth quarter of 2001, 30- to 89-day delinquencies at FDIC-insured commercial banks increased for each type of consumer credit and for each size category of bank. In the fourth quarter, the percentages of total delinquencies were higher for credit card loans than for personal loans: 2.69 percent vs. 2.47 percent (not shown in table). |
| Delinquencies at 100 Largest Banks |
| The data from the FDIC that were reported in the article above are further supported by newly released data from the Federal Reserve on delinquency rates at the 100 largest commercial banks. As we would expect, delinquency rates on residential mortgages were significantly below the rates on credit cards and other consumer loans. |
| Plight of Subprime Lenders |
| Subprime lending isn't getting any easier. Even as many city and state legislators are picking on subprime lenders, Card Forum reports that federal regulators have formed a task force to study the impact of the recession on subprime lenders in mortgages, credit cards and other areas. |
| Unbanked Consumers |
| There have been numerous articles published about "unbanked" consumers; that is, those consumers in the U.S. without bank accounts. Usually, these articles focus on minorities living in inner cities. However, if you are really seeking to serve unbanked consumers and small businesses, open a branch in Afghanistan. |
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| New Telemarketing Restrictions |
The Federal Trade Commission has issued a proposal to amend its Telemarketing Sales Rule (TSR) which is bound to cause heartburn for the direct marketing operations in all consumer-oriented businesses, but especially so for financial services firms. The FTC's proposal would create a national "Do Not Call" registry and would implement a number of other telemarketing restrictions.
| Shock to UK Creditors |
| For many years, credit reporting agencies and credit grantors in England have relied on the voters' roll to confirm a borrower's residential address. However, a retired accountant recently refused to register on the electoral rolls because the metropolitan council in charge of the voter rolls provided names and addresses to third parties. |
| European Commission Limits Bans' Charges |
| Beginning on July 1 of this year, banks that are in the euro-zone may not charge more for cross-border transactions involving ATM withdrawals and POS payments than for domestic transactions. Further, beginning July 1, 2003, the same restrictions apply to credit transactions. |
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