CNNMoney.com
Credit card defaults seen climbing, report says
Tuesday August 28, 7:12 am ET
American consumers are defaulting on their credit cards at a sharply higher
rate compared to last year, in what could be another consequence of the recent
subprime mortgage market crisis, according to a report published Tuesday. In
addition, late payments are also up, cardholders are showing signs they are
less willing to pay and credit card companies have written off 30 percent more
payments during the first half of this year versus a year ago, the Financial
Times reported. The credit rating agency Moody's told the paper the problem
could be due to the property market slowdown and fewer homeowners opting not to
refinance their residences. "The combination of higher interest rates and a
softer real estate market diminished the attractiveness of mortgage
refinancings in which many borrowers reduced their more expensive credit card
debt by drawing on the equity in their home," Moody's told the paper. At the
same time, Moody's said that the people defaulting on their
credit cards may not be the same individuals defaulting on their subprime home
loans. The agency cited stricter underwriting standards in the credit card
industry and the fact that borrowers with little or no equity in their homes
may choose to default on their residence before giving up their credit card,
according to the paper.
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