Consumer Law In the News

Foreclosure Crisis Expands Into Credit Crisis, Say Some

According to some analysts, the foreclosure crisis is spreading to other sectors of the credit industry and will continue to “drag down” the economy into ‘09 and later:

When financial analyst Meredith Whitney wrote in a report last October that the nation’s largest bank, Citigroup, lacked sufficient capital for the risks it had assumed, she was considered a heretic.

However, Whitney was proved correct: Citigroup pushed out its CEO, sought foreign investors and slashed its dividend. Her comments now carry added weight on Wall Street, and she has a new warning for ordinary Americans: The crisis in credit markets is far from over, and it increasingly will affect consumers.

“In fact, we believe that what lies ahead will be worse than what is behind us,” Whitney and colleagues at Oppenheimer & Co. wrote in a lengthy report last month about threats faced by big national banks, including Bank of America, Wachovia and others.

That’s pretty blunt language for a profession not known for its clarity. What this means for consumers:

• Continued tightening of lending standards, and increasing difficulty in getting credit, even for high-scoring consumers
• Less flexibility in working out loss mitigation plans with creditors for those who are falling behind
• Probably new kinds of fees, and higher established fees, from banks and other lending institutions striving to shore up the shrinking bottom line

© 2008 SC Bankruptcy & Consumer Law Blog.