by Martin H.
Bosworth
ConsumerAffairs.com
August 28, 2007
Consumers are defaulting more often on their credit card debt and paying less on their outstanding balances, in yet another series of repercussions from the global mortgage meltdown and credit crunch.
Credit rating agency Moody's reported that credit card lenders had to write off 4.58 percent of payments as uncollectable for the first six months of 2007, a 30 percent increase from the same period in 2006.
Moody's analysts said it was a consequence of less available home equity for consumers to tap into, due to falling home prices and a stagnant housing market.
The combination of higher interest rates and a softer real estate market diminished the attractiveness of mortgage refinancings in which many borrowers reduced their more expensive credit-card debt by drawing on the equity in their home," according to Moody's analysts.
Earlier reports had shown that consumer credit spending was on a slow decline, attributed to lack of available lending resources such as home equity and high gas prices. But the accelerating pace of the mortgage meltdown has expanded into a global credit crunch that has economists shaken and American consumers less confident in the overall economy.
Banks are enacting stricter underwriting standards for lending, including raising requirements for credit scores before granting approval for loans, scaling back automatic increases in credit lines, and raising interest rates for customers with high balances.
Many in the financial markets are already calling on the Federal Reserve to cut interest rates at their next meeting, in order to spur more lending and consumer borrowing.
Consumers took on a record-breaking $2.459 trillion in debt for June 2007, and consumer spending already accounts for two-thirds of the American economy overall.
America's excessive debt has many economists and analysts calling it a bigger threat than terrorism to the nation's overall prosperity.
