Wednesday, May 14, 2008


More home equity write-downs today in the L.A. Times. The article today is about Bank of America issuing a warning that HELOC and home equity loan losses will be worse than earlier predicted. The line of credit is basically turning into a Home Equity Line of Loss -

Bank of America Corp. warned Tuesday that its losses on home-equity loans would be worse than it predicted just three weeks ago, adding to evidence that more consumers are falling behind on debts.

... At an investor conference in New York, Liam McGee, Bank of America's president of global consumer and small-business banking, said customers were feeling "significant economic pressure" as deflating home prices left little equity for consumers to borrow against.

He predicted that losses on the bank's home-equity loans would top the 2%-to-2.5% range projected last month.
It is vague what the 2.5% is - is it the percent of all loans or it is the amount of dollars of all loans. Either way that is not a good sign, and it will probably get much worse before it gets better. When the first mortgage is being paid, recourse for the HELOC and home equity loans are significantly more difficult.

In another sign of financial strain, McGee said, more people are using credit and debit cards to pay for necessities.

Card purchases of items such as fuel, food and utilities grew 13% in the first quarter, while spending on retail, travel and entertainment rose 0.5%, the Charlotte, N.C.-based bank said.
I do not understand why using a debit card would be a sign of financial strain - after all for most accounts you have to have the money in the account to cover the charges. Unless they are going into the overdraft protection which has costly fees.

The trends at the country's largest credit card issuer support the view of economists who say the U.S. is teetering on the edge of a recession as people struggle with job losses and high gasoline prices.
High gas prices, high food prices, and now those emergency equity funds people were using as safety nets have evaporated. Things are going to get tight - and losses will be felt across the board. While technically the US may be teetering on recession, for many people they are already there and have been for some time. With day after day of record foreclosures, record credit levels, record housing value declines, and record negative savings rates not seen since the Depression, for many people the discussion is if we are teetering on something worse than a recession.

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