Credit card options becoming more limited
July 15, 2009 by admin
Consumers shopping for a new credit card or looking for a balance transfer promotion, are going to find fewer options and less perks to open new cards in today’s economy. The credit card industry has been reducing their marketing and promotions for new customers since the beginning of the year, and major banks have started to change their card terms, increasing rates and fees following the implementation of the credit card reforms from earlier this year.
According to a report from CBSmarketwatch, the next area under scrutiny will be the availability of a fixed rate credit card offered to consumers. Credit cards are traditionally offered to consumers in two forms, fixed rate or variable rate cards. Fixed rate cards are appealing to consumers who may occasionally carry a balance as the consumer will fully understand the potential interest they will be paying until their balance is repaid in full. Variable rate cards are structured to offer consumers interest rates that will adjust up and down typically with a margin (fixed percentage amount) that is added to the prime rate. Most promotional credit cards that are offerd to consumers (balance transfer cards, zero percent cards, etc) are cards that have variable interest rates.
The recent move by credit card companies to shift their offering to variable rate cards reflects their long term potential to make more interest from charges that will occur moving forward. Variable rate cards today offer extremely enticing rates for most borrowers with good to excellent credit. The cards are taking advantage of the historically low prime rate (3.25%), which allow for many cards to be offered well below ten percent as a starting point. The card companies stand to benefit greatly as they anticipate that the prime rate will likely head up in 2010 and in doing so bring the rates up on variable rate credit cards. Credit card companies are looking at every possible angle to try to recoup potential lost revenue from the regulatory reforms the government placed on the market earlier this year. Many card companies have raised the fees on balance transfers, increased consumers interest rates or reduced balances available on existing cards accounts.
Consumers who are in the market for a new credit card will need to take additional steps to ensure they are applying for the best card for their financial situation. In today’s marketplace where credit is harder to obtain, and bank fees are higher on balance transfers, the ability to keep opening new promotional cards and transferring balances for limited periods of time will be significantly less opportunistic. Consumers who are shopping for a fixed rate credit card will find that almost every bank still offers these cards, but they may be limited to certain credit worthy borrowers. In some situations, it may be more advantageous to choose a variable rate card if the card carries a low margin or if you traditionally pay off your card balance in full at months end. Credit card companies are likely to continue marketing new card offers and attempt to bring on new customers, so taking advantage of promotions will need to be fully analyzed in the application process.
July 14, 2009
July 14, 2009 by admin
The stock market finished the day in positive territory following a day filled with corporate earnings reports, an update on the June retail sales and PPI numbers. Investors traded the market in a fairly tight range for the entire day and finished about thirty points higher. The major economic reports of the day were a major boost towards improving confidence that the economy is slowly bouncing back to life.
The month of June saw retail sales edge higher by .6%, a strong improvement from the previous month. The producer price index was up by .5%, and moved to its highest level in the last two years. These two key economic reports provided a strong base for investors who were looking for some macro economic data to boost confidence that while the economy is likely to struggle, the worst is likely over.
Goldman Sachs, one of the world’s largest investment banks drew much of the attention as the headline company that released their corporate earnings today. The investment bank posted spectacular quarterly earnings for the second quarter, beating estimates on revenues and earnings handily for the month. Earlier this year, Goldman Sachs was one of the first companies to pay back monies borrowed through the TARP program, providing further evidence that the companies balance sheet was healthy and the company was positioning itself to return to profitability. Goldman Sachs has been one of the lightening rods for those who have tracked the money flow of taxpayers through AIG. The company benefited by the government bailout of AIG to the tune of almost thirteen billion dollars last year, money that was provided by tax payers and paid out from AIG to Goldman Sachs. Intel, one of the world’s largest technology companies, followed up on the positive earnings reports by beating expectations, this news could position the market for another day of positive trading.
The moderate improvement in the stock market has helped to push long term mortgage rates slightly higher. The yield on the ten year treasury bond has moved back above the 3.4% level and finished at 3.36% on Tuesday. The improvement with bonds can be traced directly to the stock market rally to stay in the 8000 point range. The upward push on bonds, has lifted fixed rate mortgage loans to 5.25% nationally with most banks and mortgage lenders on thirty year loan terms. Long term mortgage rates have been moving in a range from 5.25 to 5.5% for the last thirty days and are likely to stay in this range without a major change to the outlook of the economy.
Rates drop to lowest levels in two months
July 13, 2009 by admin
Home mortgage rates have dropped to their lowest levels in the past two months, following a broad sell off by the stock market and renewed concerns that the worlds economic recession could linger much longer than anticipated. The average rate for a thirty year fixed rate mortgage loan is approaching five percent (5.2% nationally) and fifteen year loan terms were available under five percent with most national mortgage lenders late last week. Most lenders quote rates with a minimum of a half of percent point included, Freddie Mac, one of the nations largest agency mortgage lenders and financers of conventional mortgage loans reported that during the same period in July of 2008, fixed rate mortgage loans were in the six point five percent range.
The drop in mortgage rates is in direct correlation to the broad market sell off for stocks. The stock market has dropped in excess of six hundred points; oil prices have dropped over ten dollars per barrel and the yield on the ten year Treasury bond is now hovering near 3.35% after surpassing the 4% range in early June. Investors tend to move in and out of the bond and equity markets as they try to position themselves for growth or against defensively against future economic uncertainty.
The past thirty days has added an enormous level of uncertainty into the market. The June jobs market showed a much larger increase with unemployment than most economists were predicting. The anticipation for a national unemployment rate to exceed ten percent this year is all but a certainty. The increase pressure on the jobs market is likely to carry over to every area of the economy from consumer confidence, to housing and ultimately GDP growth. The labor market uncertainty seemed to add fuel to the fire of the perception that the economic challenges are going to be much harder to fix than the equity market was anticipating during its thirty percent surge from March through May.
The big winner with mortgage rates are home owners who have yet to lock into a lower refinance mortgage rate and home buyers who have been reluctant to purchase a property. Lower mortgage rates have yet to dramatically impact new home purchase, but will be a necessary component in the governments plan to try and stabilize the real estate market. The government has committed billions to the housing industry through tax rebates for first time home buyers, financial incentives for loan servicers to offer loan modifications to struggling homeowners and the implementation of purchasing mortgage bonds through the Federal Reserve. The sudden rise with rates in early June spread a tremendous amount of fear and anxiety through the real estate community as well as the government. The drop with mortgage rates from nearly 6% down to 5.25% helps to save a home owner almost $80 per month on a two hundred thousand dollar home. The lower rates also help buyers to qualify to purchase larger homes and will likely help stabilize the housing market by keeping more buyers in the game and helping to remove the excess inventory. Home mortgage rates have been extremely volatile in 2009 and could again move up without notice if investors belief that equity positions offer a better roi or if there is inflationary pressure from rapidly rising oil prices.
July 7, 2009
July 7, 2009 by admin
The stock market dropped sharply in trading on Monday. Investors returning from the holiday weekend moved quickly out of equities as the market appears on a path to test the 8000 point level on the low side sometime in the next week. The market has dropped almost 7% over the last three weeks as investors have grown more pessimistic towards the possibility of an economic recovery in the near future. The dismal jobs report last week has added fuel to the fire for those who believe an economic recovery will take at least another twelve months before occurring.
The market has been dropping sharply since early June. Oil prices, may have peaked for the summer when they reached $73 per barrel a few weeks back. Oil has dropped almost $10 per barrel during this time, helping to bring the average cost for a gallon of gasoline under $2.50 per gallon. The drop in oil prices could have a significant impact on consumer inflation in the second half of the year. Higher energy prices were the only component in the economy that was showing modest price improvement and the rapid decrease could bring back the discussion of deflation in the marketplace.
One area that appeared to have promising growth potential was alternative energy. The government has been aggressively pushing a green energy agenda since the start of the year. The market has seen a sharp pull back within the solar, wind power and natural gas areas as investors are trying to decipher what direction to place their capital bets. The drop in oil prices has cooled the urgency from both lawmakers and corporations to jump start alternative energy projects on a wider scale. It appears, in the short term the drop in oil prices could impact this entire sector until the balance of the economy regroups and pricing pressure begins to bring the energy discussion back into play with more urgency.
The drop with equities has been good news for long term fixed mortgage rates. Over the last thirty days, long term rates have dropped by almost half of a percent on both fifteen an thirty year loan terms. The yield on the ten year bond, has closed in on the 3.5% mark, (3.45% on Monday) shedding almost sixty basis points in the last month. The lower mortgage rates could benefit the housing market which appears to have no meaningful answer to slowing down home foreclosures. The market is likely to see foreclosures continue to move higher, in correlation with the national employment numbers. The latest figures on the housing market has shown that nearly one out of every forty homes is now in foreclosure.
Credit card balance transfer fees move higher
July 5, 2009 by admin
Credit card companies are fighting back; increasing fees they charge consumers who transfer existing balances amongst their credit cards. The credit card industry proclaimed they would be dramatically impaired when the government pushed through sweeping card reforms earlier this year in a long awaited effort by consumer advocate groups. The potential of losing revenue, as a result of the new government regulations has not lasted long as credit card companies are looking to alternatives to recoup their lost revenues from consumers.
Millions of consumers have benefited over the years by transferring a high rate credit card balance to an alternative credit card that offered a lower balance. The financial incentive of lowering the interest on the balance, could be mathematically justified, even factoring in a one time balance transfer fee charged by the new balance carrier. The one time fees often started at one percent of the balance and moved to three percent for most card issuers. Today, a number of the nations largest card carriers are now charging up to five percent of the card balance as a one time fee. This latest increase in the one time balance transfer fee, could make the allure of transferring over an existing balance less appealing. Consider the math on a balance of 10,000 transferred between lenders:
• One time fee = $ 500 upfront
• In order to recoup the one time $500 fee, a consumer would need to be offered a lower interest rate by a minimum of six percent or more (assuming your new balance is decreasing each month), guaranteed for a minimum of twelve months.
• Card issuers often also have a minimum fee, so be sure to read any fine print when considering a balance transfer.
Consumers have been able to take advantage of the competitiveness of the credit card industry over the past decade. Many banks and credit card companies would offer great incentives to try and attract new customers, including zero percent balance transfer options for periods of one year or longer with no fees or upfront charges for qualified customers. Consumers who have a large balance on an existing credit card may still benefit from transferring this balance to another card or pursuing a signature loan with a credit union or local bank. Consumers who are looking to transfer a card balance, may want to shop for a new card versus transferring the balance to an existing card in their portfolio. Many credit card companies are still offering new customers better incentives than are available to their existing customers, taking advantage of this loophole in their business plan may allow you to transfer a credit card balance transfer at an attractive rate with reduced fees through a promotion for new customers.
Credit card companies are likely to continue to raise their rates and fees as they are struggling with higher delinquency rates as consumers struggle to remain afloat in the tough economic challenges this year. The most important thing a consumer can do is keep their credit score as high as possible and read all of the fine print and documentation prior to pursuing a balance transfer of their credit card balances, when in doubt it would not hurt to use free online calculators to run through a few math scenarios to make certain that a card transfer is a mathematically sound decision.
Job losses continue, government changes refinance mortgage terms
July 2, 2009 by admin
The month of July has started with a flurry of major news, including a major change to the governments refinance initiative with Fannie Mae and Freddie Mac as well as a disappointing employment report. The clear evidence is that the economic downturn that began at the end of 2007 is likely to continue its impact on all aspects of the market for the balance of the year.
The government’s June non farm payroll report is likely to send the stock market into a tailspin. The report showed job losses of 467,000 for the month of June, almost 100,000 higher than many economists were predicting. The national unemployment rate has passed 9.5% and is on a collision course with passing the ten percent level by years end. The healthcare industry appears to be one of the few isolated areas where job growth is continuing. As unemployment continues to increase, every area of the economy will continue to be under pressure and the chances of a realistic recovery starting this year appear to be disappearing. Average earnings and hours worked are also continuing to trend downward, placing enormous pressure on growth in consumer spending.
The housing industry has been struggling for the better part of the past two years. Surging home foreclosures and mounting job losses are fueling an unprecedented drop in home values. The Obama administration has tried a few tactics to help slow down this decline. The government announced in early February a program to help home owners modify their home loans through a government sponsored loan modification program. This program was designed to streamline the modification process for struggling home owners whose loans were serviced by Fannie Mae or Freddie Mac. The government also set up a refinance program, allowing homeowners whose values were higher than their property value to refinance up to 105% of their property value.
The government’s goal for their modification and refinance initiative was targeted at helping five million home owners. The early results showed very poor results amid consumer criticism that the loan servicers were not cooperating and the loan to value ratios were not generous enough to help homeowners most desperate for aid. The Obama administration announced this week further changes to their initial program and will now allow home owners to refinance up to 125% of their properties value. Home owners who have loans serviced through Fannie Mae or Freddie Mac (conventional home loans) may be able to refinance their mortgage loans and take advantage of the new programs. The proposals are still heavily criticized as many experts believe the only way to fix the underlying problem is to offer principal balance write downs to home owners who are dramatically overleveraged with their real estate.
July 1, 2009
July 1, 2009 by admin
The month of July has greeted investors on a positive note. Stocks moved up sharply in early trading as the second half of the year brings renewed optimism that the economic recession could be winding down and corporate earnings could trend up heading into 2010. There were three major reports released today that have helped move the market. The private sector ADP report which tracks the private sector and job market, showed further erosion within employment, although slightly below some economic predictions. The ADP report, showed revised job losses for the months of May and April to be slightly lower than first published.
The institute of supply management reported that manufacturing rose slightly in the month of June, providing further evidence that the economic slowdown is winding its way downward. The housing market also showed a slight uptick for the month of May, but at a much slower pace than the month of April. Pending home sales rose one tenth of a percent for the month. The housing market is being strongly influenced by the government tax rebates (up to $8,000) and abundant inventory.
The housing market will be closely followed for the remainder of the summer. Thursday’s job report will provide further direction for the possibility of a housing recovery, as the housing market and job market are closely aligned. Since the first week of June, mortgage rates have dropped almost ½ percent. Yields on long term bonds have dropped over forty basis points during this period as investors are repositioning themselves amongst the uncertain economic times. Home mortgages often move higher as the stock market moves higher, following investors who are moving money out of bonds (lowering the demand/raising the yield) and into stocks. The average rate for a thirty year fixed rate home loan is now at or below 5.5% nationally on thirty year loan terms with most national mortgage lenders.
The month of July will likely be another month of continued volatility in the equity markets. Oil prices are again above seventy dollars a barrel, one of the only commodities that will likely influence inflation this year. Consumer confidence remains subdued, but has improved this year following the sharp falloff in January and February. The jobs report on Thursday will likely impact the sentiment of the market heading into a holiday shortened trading week.