Credit card, auto debt to spike in 2008 - Fitch
Fitch Ratings said Friday it expects a spike in bad credit card debt and car loans in 2008 as the American consumer is besieged by heightened unemployment, mushrooming prices and a slumping housing market.
The credit-ratings agency anticipates credit card lenders could write off more than 7% of their portfolios this year, compared with the 5.21 percent pace of write-offs in 2007.
Car lenders catering to borrowers with blemished credit histories could write off 11% of their loans, which means write-offs will have more than doubled in two years. Lenders issuing loans to people with stellar credit will probably write off 2 percent of their portfolios, an increase of almost 50%, Fitch said.
Fitch tries to forecast losses on these types of loans because they are frequently bundled into bonds and sold to investors payday loan low fee. How much the bonds are worth pivots on how reliably the underlying loans are repaid.
With unemployment at 4.9%, prices ticking up, the housing market mired in a slump and people worried about growth in their wages, Fitch said the U.S. economy will saddle the American consumer more heavily in 2008.
"The U.S. economy is showing more cracks, which will continue to impact the performance of U.S. credit card and auto loan asset-backed securities," Fitch said.
Even assuming higher losses, Fitch said most of these bonds are still safe. Most bonds are structured to withstand greater losses than Fitch forecasts, the agency said.