Troublesome Numbers: 7,000 Again.  700,000 for the First Time.

The housing meltdown was a major reason in the plummet of the Dow to levels below 7,000. Increased confidence in the financial system resulted in a 2 month rally.

However, sentiment is changing as people are starting to see another potential meltdown on the horizon.

This next meltdown is likely drop the Dow back to levels below 7,000. In addition, it is possible the country could see non-business bankruptcy filings hit 700,000 in the fourth quarter of this year, which would more than double the number of filings of Q4 2008. In fact, it would set a new record for bankruptcy filings.

The practice of companies willing to extend credit to many consumers, who may not have been in a position to take on that credit, combined with consumers’ willingness to take advantage of that available credit was the main factor in the first collapse.

The next one will have a similar story line.

This time, it is the credit card companies that have over-extended credit to many consumers. And, once again, many consumers have taken advantage of that available credit.

Like the housing crisis, this is not sustainable and will result in huge losses for companies as well as major financial issues for hundreds of thousands of consumers that will result in increased bankruptcies.

This would play out on its own but Congress may speed up the process and make it more severe yesterday by passing a new law regulating the credit card companies.

Additional regulations on credit card companies will do two things:
1)    Hurt Credit Card company profits by increasing their risk.
2)    Decrease available credit for consumers .

Both issues are not good for the equity markets as it hurts consumer spending capabilities and affects company profits. This is why we may, once again, see the market fall past 7,000 and see, for the first time, record bankruptcies possibly reaching 700,000 in Q4.

Area Realtors and loan officials saying that the rush to judgement against the sub-prime loan market may hurt the ability of people who need special assistance in getting home loans or refinancing their existing loans to do repair work.

‘‘Sub-prime loans are not bad,’’ Daniel Crouse, president of the Warren Area Board of Realtors, said. ‘‘It is the abuse of them that has been bad.’’

The sub-prime loan market has been getting a lot of scrutiny by legislators, federal regulators and others, because some of these loans — often called predatory — have led tens of thousands of people across the country into foreclosure and bankruptcy.

However, Crouse and others are saying that people should not paint all of these loans with the same broad stroke of being bad.

Read the rest of this entry »

Fraud, abusive lending crushes dreams for millions of home owners

Mark and Kerrie Russo, a Jackson, N.J., couple raising two young daughters, are struggling to hang on. Less than a year after buying a home in 2005, which they financed with a 30-year fixed rate loan based on a solid credit history, a local mortgage broker began sending letters offering to refinance their loan. A new product, the sales pitch said, allowed home owners flexibility to choose from a menu of different payments from one month to the next.

What the broker didn’t explain, Kerrie Russo says, is that this was a “negative amortization” loan — an expanding debt that buried the couple deeper in hock even as they thought they were paying down their mortgage balance.

Like many borrowers who were sold mortgages they couldn’t afford, Russo says that when she called the broker to complain, she was told that because she failed to read the fine print, the responsibility for getting in too deep was hers.

After coming up with about $14,000 to get out of the downward spiral into yet another loan, Russo says she’s learned an important lesson.

“I have learned a new term called ‘predatory lending,’” she said. “And that is what I am a victim of.”

Read the rest of this entry »