Increasing foreclosure: the affect of recession

During the first six months of 2009, it was a record that 1.53 million US properties & assets were in the process of foreclosure - default notices, auction sale notices and bank repossessions. This figure is 9% more than the last six months of 2008 and 15% more than 1st six months of 2008, according to the US market reviews.
According to the report, there were 1.91 million foreclosure filings which are considered as 1 single property out of every 84 U.S. properties in the first half of the year 2009. Financial institutions or banks repossessed almost 386,800 properties in last 6 months. In addition to that there was no improvement in housing recovery in June, the last month of the cycle which is a very bad sign for the economy.
In the month of June,2009 ;More than 336,000 homeowners filled foreclosure , which is over 33% from June,2008 and nearly more than 5% with May 2009.
The biggest reason which really affecting foreclosure statistics is the recession. People were losing jobs in different sectors & were unable to payoff their respective debts. As a result, the number of out-of-work borrowers or defaulters is increasing. The prices of the properties are still going downwards at a slower rate, which pushes more homeowners into uncertainty because drop down of home-prices means more homeowners owing to the bank much more than their home is worth. That discourages them fully from repaying their respective monthly loan payment because they realize that it will be a foolish financial decision to keep paying on an asset which is having decreasing money value. Reports says that homeowners are deliberately surrendered their mortgages once their asset value fall 15% below their mortgage balances.

Experts added that at least 25% of all mortgage defaults may be "strategic”, because borrowers have lost so much value of their respective assets that they walking away from their homes. It was found that the areas which mostly affected by foreclosure, home prices have fallen by 40% or more.
However, parts of the borrowers are negotiating with their lenders, constantly trying to soften the terms of their debt so they can payback their loans & stay in their homes. But that process has been slow and infuriating to many borrowers. As a result, foreclosure rate is massively increasing.
California was recorded foreclosure more than any other state with 391,611 filings, one for every 34 households. Nevada had the highest foreclosure rate with one for every 16 households. Arizona, one for every 30, and Florida, one for every 33. Georgia, at one for every 70 households, is sixth,Michigan recorded one for every 74 households,holds the seventh place. Illinois came in eighth with one for every 76; and Idaho, one for every 79, holds ninth position .Colorado, with one for every 80, secured the tenth position and Ohio, with one for every 86, was twelfth.

The "Credit Crunch"

In the winter of 2007, the "credit crunch" started , creating huge effect at that time in the housing markets & the value of mortgage-backed securities, which is controlled by maximum banks, began to tumble. Financial institutions or banks suffered a sudden loss that was beyond expectations, as a result financial institutions strictly controlled & tightened their credit-lending policies and offered more conservative credit opportunities to their consumers.

The crunch transformed into a "liquidity crisis"in September-2008. The banks were losing their liquid cash caused by the crunch worrying that other financial partners might not be able to help when the time comes to repay their internal debts. So, banks began to control their reserves, stopped or gradually reduces interbank lending, and the premium on short-term loans went much more higher than before.

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In the beginning of October, the Treasury Department of US government gave financial support to the banks. This efforts was aimed at getting over from the "Credit Crunch" & getting financial agencies or banks to support to each other again.

Experts say the programs have largely worked. Banks have started repaying their internal debts & interbank lending has also increased. It is assumed that the critical situation has passed. But the crunch is here to stay for awhile.

Why?If banks are healthier, then what is the reason for such delay?

Mostly, because the economy is still tumbling from the mass effect of "Credit Crunch". Unemployment level is increased by 10% than before , the value of household wealth & assets are decreasing, foreclosures still rising. Banks aren't quite ready to invest their liquid cash to the incoming customers without being totally assured that the money will be paid back with the interest in the confirmed period of time.

It is certain that whether liquidity is gradually getting back to normal, that doesn't mean that financial institutions or banks are healthy enough to lending money to the borrowers. If we have a close look , it can be noticed that losses , caused by the previous lendings & mortgage-backed securities, are still increasing. Markets are still tumbling by the affect and banks are still remaining in their internal debts.

Experts predicts that the credit crunch will come to an end in about a year. It can be said that low rates of assets & household wealth will probably spur inflation at some point, and financial institutions or banks will make more liquid cash to balance the total situation.

Big changes to the CREDITCARD industry

The recession had a immense effect on the credit card industry, which has caused billions of dollars in losses with a huge increase in the number of people who can’t pay their bills because of a sudden job loss or other money crisis. That causes another ripple effect even on a large group of credit card customers who have always paid their bills on time.

Bill Hardekopf(chief executive officer of lowcards.com) has added “The game has changed dramatically. If you do anything — and I mean anything — to show that you’re a higher financial risk right now, you will, the next month, get an increase in your (annual percentage rate) or a decrease in your credit limit.”

In the period from 2007 - 2008, credit card service providers increases their interest rates on nearly 1/3 of all their existing cardholder accounts- according to the Pew Safe Credit Cards Project, which collects data the banks provided about new credit card regulations.

Within the first three months, the rate of interest for bank-issued credit cards increased to 1.32 percent, from 1.19 percent a year ago-added TransUnion,from 27 million-credit card transaction database.

A new set of regulations, known as the Credit Card Bill of Rights, will get into effect from next year , which will make a number of changes particularly protecting customers from sudden unexpected deductions, and risinge interest rates without proper notification.

The techniques credit card providers using to compute risk depends upon various things, but experts say a minor change of your payment-pattern can be causing a sudden increase of interest rates, or decrease in your creditlimit . Only making the minimum payments can also be a red flag to credit card companies .Using your credit card to buy second-hand commodities or for gambling/betting can also be harmful for your credit score.so think wisely, do well.

Lifestyle vs Credit

Finance.......in the othere word "money" is covering the most of our life style including our daily habits & daily needs.We all aware of the fact that we are often spend money beyond our capability....& practically it always effects our credit scores.

Now a days we all use credit cards more or less...whether it is for shopping or paying bills..... whatever.But none of us think that excessively using credit can also attracts your creditors to moniter you.Credit card companies continue to tighten their lending standards on card users.They are sneaking around your credit-data from your regular transaction receipts.They are doing this to identify the usege pattern of the custmer to be certain about the custmer's credit risk.

Have we often use credit cards for purchasing low grade food material , second-hand garments/products or for gambling, betting kind of things?we must be aware because the credit card service provider might be watching over us through our turnover records and making decisions about our creditworthiness according to our spending patterns.It compelled them to find financial distress in our behaviour & indications to be a defaulter of payment .The outcome will be higher interest rates & low credit limits.It immedietely effects the buyining pattern of a normal because higher interest rates & low credit limit results low utilization of credit card.it will also reduces the credit score of an indivisual.So use your credit card whenever you need, but always use it wisely.

Welcome Friends

welcome....finance itself is a vast subject & to write about it is not an easy job to perform, but still it is also the most important factor of our life.

the basic concept which the word "finance " denotes, is money.in our total life span we are constantly trying to use it by different ways....but do we realy know how to utilise it?do we?.........we will discuss it later