Tuesday, August 30, 2011

Consumer Creditworthiness Improves

PBS NIGHTLY BUSINES REPORT - Monday, August 29, 2011

TOM HUDSON: : We saw a bright spot for Consumers in July. Spending rebounded last month as Americans bought more cars. Sales increased by 0.8% in July, the biggest increase in five Months. Spending was lifted by a rise in Income, which rose 0.3%, and a Slowdown in the savings rate, to 5% from 5.5%. The head of consumer credit Ratings agency Fico tells us Americans creditworthiness is Improving, but is not where it Needs to be. We spoke with CEO Mark Greene, who began with some Bright spots for consumer Credit.

MARK GREENE CEO, FICO; Consumers have done a Good job actually focus on Their credit cards, in fact, they paid down their debt on Credit cards and are now running at the lowest default rates on credit cards in 17 years.

There's similar health around automobile loans and student loans. So a lot of the credit portfolio that people normally think consumers have done a pretty good job as they move from a period of dissaving to saving and sort of paying off those balances.

So where are the problem spots? Problems really in the housing market. The housing market still has easily another 12 or 18 months to go to work through. This really large backlog of foreclosed properties and properties that are underwater. In fact, we think these days that about a third of home sales are of foreclosed properties. So long as that remains true, Consumers are feeling very nervous about their own home ownership. Their home is likely Underwater -- one Out of three homes is Underwater. Until we see an improving in The house market t is the Mortgage that will be an
anchor on consumer credit.

HUDSON:: Isn't that the problem when we are talking about credit-card debt, are you talk will about a stub toed. When are you talking about Mortgage debt that is the Cardiac problem, right, a Much bigger debt issue than Anything else?

GREENE it is a much bigger issue, You are exactly right given The size of mortgages. And it's also more Complicated because there Are several factors driving The mortgage issue. One is simply the problem of People not being secure in Their jobs. So employment actually Correlates highly with what Goes be in the mortgage Industry. If you don't see good job Prospects for yourself or Your neighbor, are you Really nervous about having A big liability such as a Mortgage. So you are resistant to Buying a new home or Refinancing your existing Home. The other problem is one of Confidence. In an era where you see the Kind of shenanigans going on In Washington, the kind of Volatility in the stock Market, you feel really Nervous. And people who are nervous Do not want to undertake Large obligations and we see this expressed in recent consumer confidence numbers which are running close to the lows-- the lowest levels they've been at since 1980. So consumers are very Worried.

HUDSON: They got the tool kit when it comes to credit Worthiness of Americans and Works with lenders on Mortgage workouts, for Instance. What needs to be done to fix that process, thought to streamline it and to get banks and the borrowers both engaged to come up with an equitable outcome?

GREENE: Well, a couple things it is a great question. One portion of the mortgage foreclosure and delinquency problem has a specific solution and that is the portion of consumers who actually can afford to pay their mortgages but choose not to. They see their neighbor down the street not paying their mortgage and getting away with it. Or they feel they shouldn't pay because their own home is underwater. This is what is often Referred to as strategic Defaults. Banks simply need to do an Early intervention, go to The consumer, the homeowner and say is everything okay. Do we need to do a workout or restructuring that is about four troubled mortgages are strategic defaults. For the others what we are looking for is some improvement in levels of employment stability. Some improving confidence in the business environment. and perhaps what you are hearing talked about in Washington these days, a variety of new home mortgage support programs, making it possible for consumers to afford their mortgages through some reduction in the monthly principal or interest payments.

HUDSON: We appreciate some of those ideas. our guest this evening Mark Greene CEO. of the Consumer Credit Rating Company.


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