Credit Rating Agencies are Having Trouble Posted by: Henry Baum | Jun 06,2008

Del.icio.us Digg

  You know the economy’s in trouble when even the credit ratings agencies are showing first quarter losses.  We’ve written here before about how a low rating from a credit rating agency like Standard and Poor’s can send the stock markets tumbling.  In a way, Standard and Poor’s has a similar power to the Fed.  When Standard and Poor’s is pessimistic, it can have a dire outcome, just the same as Ben Bernanke making a less-than-optimist assessment of the economy.  

At the same time, it turns out that these credit ratings are taking a hit.  This comes as something as surprise, as in the midst of a credit crisis, Standard and Poor’s credit ratings are an important part of getting the economy back on track.  However, it turns out that credit rating agencies like Standard and Poor’s are struggling for very much the same reason as the financial institutions they’re gauging: a lack of sufficient regulation. 

A Lack of Regulation and Oversight

The reason that banking institutions are currently struggling is due to lack of regulations of the mortgage industry.  As a result, lenders were able to go wild with loans that they has no business approving.  It was profitable in the short term, until many of those loans starting collapsing due to foreclosures.  Rating agencies like Standard and Poor’s have faced similar problems with regulations.  For example, the ratings agency has been criticized for inflating ratings numbers – the result being that banks were able to continue unsafe lending practices, contributing to the mortgage fallout.  

In short, these credit ratings agencies contributed to the credit crisis by not effectively rating financial institutions.  So now there are calls for a complete overhaul: both of lending practices and how ratings are administered.  This has not lessened the impact of a bad Standard and Poor’s rating, but that is partially due to the fact that a bad rating is certainly bad news, given the agency’s penchant for glossing over numbers in the past.  

These dubious practices have cut into ratings agencies’ profit lines, as they are under investigation for their role in the credit crisis and new regulations are yet to be determined.  As with the quarter earnings of investment banks, these dips in profits should turn around once new regulations are administered and the credit crisis comes to a close.  In the meantime, Standard and Poor’s is feeling the heat for its past practices and until these old issues are resolved, the agency can expect lower profits and lower confidence.  

Home Depot Facing Credit Problems Posted by: Henry Baum | Jun 05,2008

Del.icio.us Digg

  The Chief Financial Officer of Home Depot, Carol Tome, has said that defaults on Home Depot credit cards are on the rise, cutting into Home Depot’s overall profit line.  Loss rates at Home Dept are targeted at 8%, compared to 6% last year.  This should not really come as a surprise, as Home Depot is being hit on two fronts: both credit cards and the housing market. 

The Housing Market Decline

Because home values are dropping, people are less willing to pour money into the home for home improvements.  One could make the argument that home improvements are more necessary to offset the loss in a home’s value due to a bursting housing bubble, but this is not the path that most homeowners take.  Instead, homeowners are avoiding home improvement projects because of a home’s declining value.  

However, that is not the only issue at stake.  Plainly, homeowners cannot afford to make these improvements due to a struggling economy.  Many homeowners have maxed out their home equity line of credit, for the sheer fact that the equity is valued longer and so it can’t be stretched as far.  These same homeowners do not have the liquid cash to make home improvements and are less willing to use a credit to make the expensive purchases required for a home improvement project. 

Credit Defaults Are Up

When you match that problem with the fact that credit card defaults are up overall for all types of credit cards, it is not surprising that Home Depot should be facing such a decline.  While Home Depot did see fine profits during the housing boom, it appears the chain is suffering from the mortgage crisis to a larger extent than other types of store-affiliated credit cards, like Target, which are also facing financial difficulty.  

Given that the majority of Home Depot purchases are for home improvement projects of some kind, Home Depot has to ride the wave of the housing crisis for its credit problems to resolve.  Target, at least, has a more expansive customer base – non-homeowners as well as homeowners.  So even if Home Depot offers high incentives to use the card, such as higher bonuses for purchases, this will not be effective if people do not use the card.  When this is coupled with increased defaults, it is likely that Home Depot’s problems will continue so long as the housing crisis is an issue.  

Worst Places to Retire in the U.S. Posted by: Lisa Nichols | Jun 05,2008

Del.icio.us Digg

 

You won’t want to hang your hat at any of the worst places to retire in the U.S. when you’re looking for a place to retire, you want to see familiar faces, find a town that’s easy to get around and look for a city that’s affordable and safe. We’ve talked a lot about best places to live and best places to retire, so for a change of pace, we’ll look at places to avoid when you retire:

 

Worst Places to Retire: Anchorage Alaska

 

Anchorage, Alaska, although beautiful, is one of the worst places to retire. The city has only half as many senior citizens as the rest of the country. The best cities to retire in offer a diverse group of citizens that includes people of all ages.

 

Worst Cities for Seniors: San Francisco, California

 

San Francisco, California is another beautiful city in the west that’s considered one of the worst cities for seniors. Although the city is filled with beautiful attractions, it’s also filled with steep hills. The challenges involved in getting around San Francisco on foot is what makes this one of the worst cities for seniors.

 

Worst Places to Retire: Queens, New York

 

High crime rates and the high cost of living make Queens, New York one of the worst places to retire. The borough is known for its pedestrian street accidents as well as its crime rates. Add in an average home sales price of $500,000 in Queens and it’s easy to see why the area is considered one of the worst places to retire.

 

Things to Keep in Mind when You Look for the Best Cities to Retire

 

When you’re looking for the best cities to retire, there are some items to keep in mind. Taxes and available senior discounts for products and services should be a consideration for any retirement area. The number of qualified nursing homes in the best cities to retire should be more than adequate and highly-rated. Although Florida offers many recreational activities and is a haven for seniors, the tropical temperatures and high humidity in this southern state may make it difficult for seniors to enjoy.

 

One year before you plan to buy a home for your retirement years, make sure that your credit rating is in order. A low interest instant decision credit card or an airline miles credit card that offers special rates for balance transfers can help you get your debt paid off more quickly and raise your credit score. 

A New Term to Watch Out For: Credit Recession Posted by: Henry Baum | Jun 04,2008

Del.icio.us Digg

  So what exactly is a credit recession?  Is it a credit crisis?  Is it a recession.  Unsurprisingly, it’s a mixture of the two.  However, if you start seeing the term bandied about, you should know about the difference between a crisis and a full-blown recession. There is talk that a credit recession could last as long as two years, which may come as a surprise to some more-optimistic investors and consumers.   

If you’ve followed the credit crisis at all, you’ve probably seen talk that the credit crisis is projected to end sometime in 2009.  Also, there is talk of a recession – a decline in the country’s Gross Domestic Product - but a technical recession has yet to occur.  A credit recession is deemed a period in which there are further restrictions on lending, making it harder for consumers to secure loans, and for investors to use loans as a stable form of investment. 

The Credit Crisis, Recession, and Credit Recession

The credit crisis and recession mainly revolves around the concept of profits.  The subprime mortgage crisis has cut significantly into lenders’ profits over several quarters.  Likewise, the GDP is like the country’s overall profit line, so the credit crisis has put the overall economy on shaky ground.  A credit recession, on the other hand, is more like the residual effect of the credit crisis.  Though it may last longer than projections for the credit crisis, it does not necessarily mean that the economy is going to be on the edge of fiscal crisis for longer.  

Basically, all the credit crisis refers to is that lenders are not going to be giving out as many loans – this is in part due to lenders’ own actions as well as new government regulations.  For the most part, this was a given.  The reason for the subprime mortgage crisis was an overabundance of loans.  As a result, lenders had to stop over-approving loans, both as a way to reform the system, as well as to save money lost due to foreclosures.  

Even if those lenders are able to get their profits back in the red for several quarters running, a credit recession will still linger, both because of new lending regulations, in addition to lenders taking baby steps in the new system.  Lenders just don’t want to repeat the mess that led to 2007’s subprime mortgage crisis.  For consumers, though, this means that many types of loans will be hard to come by.  Though this isn’t as damaging as a full-bore recession, inflation, or even high gas prices, this is something to consider, especially if you will need to apply for a major loan in the coming years.