Two Disturbing Articles – Credit Card Debt Up & Risky Home Loans Up

Credit Card Balances Reach Highest Levels Since 2008, TransUnion Reports
According to an article in ACC International (an Association of Credit and Collection Professionals) “On the heels of a strong holiday shopping season, our data show that consumers are charging more of their purchases, a positive sign for the credit card industry,” said Nidhi Verma, director of research and consulting in TransUnion’s financial services business unit. “With a stabilized delinquency environment reflected by essentially the same delinquency rate as in Q4 2013, credit card balance growth generally reflects a healthy market with more consumers gaining access to credit—and using that credit to make purchases.”
What does this quote above really mean?  It means that more people are charging their purchases rather than paying out right.  This may be a “positive sign for the credit card industry”, but it is troubling sign for the consumer.   Of course new debt is great for the credit card industry, but what does it really mean for the consumer?
Couple that with “(n)ew entrants into the credit card market also impacted total balances. The number of consumers with access to credit grew to 157 million in the fourth quarter of last year, an increase of nearly 7 million from the fourth quarter of 2013. However, the average credit card balance per consumer remained flat, declining only $3 from $5,330 in the fourth quarter of 2013 to $5,327 in the fourth quarter of 2014.”
What is disturbing about this last paragraph?  Two things.  First, the use of credit is growing, most likely by the young who do not know how to handle credit.  Second, the average of every credit card is approximately $5,330.   Since more consumers have at least 2 cards, that means they are carrying approximately $10,660 of debt.  This amount would be almost impossible for most consumers to pay in the next six months.
Riskiness of U.S. home loans continued to rise in Q4
According to an article in Scotsman’s Guide (publication for mortgage originators) “U.S. loans got riskier at the end of last year as the federal government encouraged looser credit and nonbanks continued their rise in mortgage lending, according to American Enterprise Institute’s (AEI’s) International Center on Housing Risk.
AEI’s National Mortgage Index increased to 11.97 percent in January, up 0.4 percent for the quarter and 0.8 percent from a year ago. Meanwhile, the index that tracks Federal Housing Administration-backed loans jumped to 24.41 percent, up 1.5 percent year over year. This means that AEI estimates that nearly 12 percent of all loans that it tracks and nearly a quarter of FHA-backed loans would fail in a severe recession similar to the financial crisis of 2007-2008. (emphasis added)

Stephen Oliner, the center’s co-director, said in a morning briefing on Monday that credit remains loose.
“We continue to find that the QM [Qualified Mortgage] regulation has not been reducing the volume of loans of high-debt-to-income ratio,” Oliner said. “Over the past three months, nearly a quarter of loans had a debt-to-income ratio above the nominal QM limit of 43 percent, which is a few percentages above the share of new loans in the half year before the QM regulation went into play.””
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