Bankrupt MIDDLE CLASS !- ENB

More than 8 million Britons will be deemed credit risks by 2011

By Sean O'Grady, Economics Editor Published: 22 August 2007 After the credit crunch - the consumer crunch. Our live-now-pay-later habits are leaving us increasingly unable to service onerous financial commitments, according to the independent research group Datamonitor. Its research suggests that those "systematically denied credit by mainstream lenders" will increase from seven million to 8.6 million by 2011, one in four of the working population.
Consumers face a personal credit squeeze as higher interest rates, increased taxation and the rising cost of living bite into their ability to service a record level of debt, and more are defaulting.
Maya Imberg, the financial services analyst at Datamonitor said: "2006 saw an increase in this population for the first time in many years, as the financial difficulties consumers are experiencing are gradually feeding through." Mainstream lenders are rejecting individuals for a number of reasons, including county court judgments, unemployment, bankruptcy or being in receipt of income support, among others. One of the main players, Barclaycard, yesterday confirmed that it has been tightening its lending criteria in recent years "in line with how the market has been changing".
The number of homes taken into repossession in the first six months of this year rose by 30 per cent compared with the first half of 2006 according to the Council of Mortgage Lenders. County court judgments (CCJs) rose for a second consecutive year, the first such rise since 1991, with 843,853 CCJs recorded in 2006, an increase of 32.5 per cent on the previous year. Individual insolvencies in England and Wales increased by 33 per cent in 2006, to 62,920.
The wider picture is of a mountain of borrowing sustainable only if the easy credit of the past few years returns. That looks unlikely after five interest hikes in a year and nervous banks look to the quality of their lending in the wake of the US sub-prime crisis.
The UK's outstanding consumer debt, including mortgages, has climbed to a record £1.3 trillion (£1,344,721,000,000). As banks and building societies have lent anything up to five or six times salary rather than the past norm of three times income, the cost of servicing a home loan (interest and capital repayment) as a percentage of household disposable income has surpassed the previous peak level of 18 per cent, seen in 1990. Savings have collapsed to a 50-year low. Nor, with much lower inflation these days, can borrowers rely on that to demolish the real value of these debts, as it did in the 1970s and 1980s.
Of particular concern are the 2.8 million borrowers moving from cheap fixed-rates deals to market rates over the next 18 months. They will see mortgage bills jump by £100 per month or more. Most at risk are the poorest. The Consumer Credit Counselling Service, a debt charity, reports that the unsecured debt of low-income homeowners has risen by more than 50 per cent: from £23,000 to £36,000, enormous sums for households with incomes of £220 per week.
The upshot is that more people will be pushed into the "sub-prime" market for their credit, more expensive than mainstream finance, and more hazardous for all concerned - but even that is drying up.
Korin Nolan: 'I'm constantly trying to live off less and less'
Korin Nolan, 29, with one son, Liam, 10, is the Booth Girl on Channel 5's 'The Wright Stuff'
My credit rating is so bad that when I walked into various building societies two years ago they literally laughed in my face. Nobody is prepared to lend me money, because my credit history shows I've been better at borrowing than saving - much better.
I'm in so much debt that I try not to think about it. It's probably around £40,000. I have £6,000 of an overdraft, £2,500 on credit cards, at least £10,000 of a student loan, and the rest my bank has loaned to me.
Having a baby boy at 19, when I was at university, got my credit history off to a bad start. I didn't have the time to work. My parents weren't in a position to help me, which meant that I had no choice but to borrow. I consolidated all of these in my mid-twenties, but because I couldn't pay it off it only accumulated interest.
I'd like a car or a home with a mortgage. But if you've got a bad credit rating there's no way of getting the necessary loans. I'm not even allowed to get credit cards, so I'm constantly trying to live off less and less, even though my salary remains constant. I've lost all my negotiating power with the bank manager.
Banks are prepared to look back over years of credit history. You don't want to give them any ammunition.

US government urged to bail out homeowners

By Stephen Foley in New York Published: 22 August 2007

Political pressure is building in the US for a government-supported bail-out of low-income homeowners, whose rising mortgage arrears have sparked a full-blown global financial crisis.
The chairman of the powerful Senate banking committee, Democrat presidential candidate Chris Dodd, pressed his case yesterday for allowing Freddie Mac and Fannie Mae, the government-backed mortgage companies, to offer new sub-prime loans for low-income homeowners who have got into trouble.
Mr Dodd used a meeting yesterday with Ben Bernanke, the chairman of the Federal Reserve, and Hank Paulson, the Treasury Secretary, to pile pressure on the pair to do more to alleviate the financial difficulties for millions of homeowners who have taken out onerous mortgages in the past three years. He also said he believed an interest rate reduction by the Fed would help to ensure that the crisis does not dampen economic growth.
Before the meeting, new figures showed the number of foreclosures in the US had almost doubled in a year. Lenders sent 179,599 notices of default, scheduled auctions or bank repossessions last month, a 93 per cent increase from a year earlier, according to the consultants RealtyTrac. Just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the country's total filings.
Freddie Mac and Fannie Mae are publicly quoted companies which buy and sell mortgages issued by other lenders. They operate with a federal government guarantee and under strict controls, with the aim of ensuring there is funding available to mortgage lenders and home ownership is encouraged. They have not, however, been allowed to support the so-called sub-prime, or "non-conforming", loans handed to low-income borrowers in recent years, which have been funded by much more complicated debt instruments invented by and traded on Wall Street. These instruments have fallen suddenly out of favour as a result of rising defaults, creating a funding crisis for mortgage lenders and jacking up mortgage rates for all new borrowers.
Senator Dodd said the role of Fannie and Freddie should be dramatically expanded and he blamed the Federal Reserve for failing to fault dubious lending practices. He estimated that between 1 and 3 million people are at risk of losing their homes, "not because they lost their jobs, not because the economy collapsed, but because they got bad deals on mortgages".
The Bush administration has resisted the proposals for fear of endorsing poor lending practices by the mortgage industry. Mr Paulson said the financial crisis would take time to resolve, but that current "stresses and strains" came against the backdrop of a fundamentally sound economy. "These issues have not been precipitated by weak economic conditions, they've been precipitated by excesses and by bad lending practices," he said.
At the meeting, Mr Bernanke promised to use all the tools at his disposal to restore activity in the debt markets, and said he would act later this week to encourage more banks to borrow directly from the Fed at its "discount window". This is where the Fed lends to the banking system, taking in currently unloved debt instruments as collateral. The Fed cut its discount interest rate last week, and yesterday its New York overshoot cut lending fees to encourage more banks to use it as a lender of last resort. The Fed also pumped an extra $3.75bn into the financial system through overnight lending