US credit card asset quality to weaken in '08-Fitch
Thu Jan 10, 2008
NEW YORK, Jan 10 (Reuters) - U.S. credit card performance will deteriorate noticeably this year on spillover from the residential mortgage segment, weaker economic trends and higher levels of unemployment, Fitch said in a report on Thursday.
While credit card asset quality has been solid over the last few years due to low interest rates, a benign credit environment and changes in bankruptcy legislation, recent stress in the mortgage market has many expecting spillover into credit cards and other consumer products.
Fitch said those expectations began to play out as credit card delinquencies began to tick up in the latter half of 2007, although they also remain below historical levels.
Prime delinquencies of 60 days or more amounted to 2.82 percent of borrowers as of November 2007, below a 10-year average of 3.04 percent, while subprime delinquencies amounted to 4.90 percent, well below a 10-year average of 6.69 percent.
While it believes deteriorating consumer credit trends will continue in 2008, Fitch said changes in bankruptcy legislation and industry dynamics raise questions about what "normalized" delinquency and charge-off levels are for credit cards.
With $922 billion in revolving credit outstanding, according to the Federal Reserve, the highly leveraged U.S. consumer, will continue under pressure in 2008, Fitch said.
Consumer credit declines may be partially buoyed by low interest rates and a potential shift in the consumer payment waterfall, it said.
Historically, overstretched consumers made mortgage payments first to keep a roof over their head. However, interest rate resets on adjustable rate mortgages and the inability to refinance mortgages have many consumers rethinking housing affordability, the credit ratings agency said.
"Many subprime consumers have walked away from expensive mortgages and remained current on other consumer loans, like auto loans, in order to maintain transportation to work. Credit card borrowers also attempted to stay current in an effort to maintain growing card reward balances," Fitch said.
News Source : http://www.reuters.com
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