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The Next Big Company At Risk? It's Conceivable that American Express Could Bite the Dust.

Credit card companies are having a hard time borrowing money.The credit market freeze isn't just about Mortgage Backed Securities or Commercial Paper.  As credit cardholders fall delinquent on their credit card payments, American Express, once considered the grand dame of credit cards, is in trouble.  It having difficulty raising money to operate.

Amex, and other non-depository credit card companies, borrow money to conduct daily business by selling credit card-backed securities.  These bonds are secured by customer payments, and many customers aren't paying.

Last summer, it seemed inconceivable that Countrywide could fail.  Or Lehman Brothers.  Or AIG. 

At the beginning of 2008, the cream of credit card-backed securities was trading at LIBOR plus 50 basis points.  The level of risk associated with buying the debt was such that this was considered an adequate return.  That same debt sold last week for LIBOR plus 475 basis points, according to data from Chase Bank, reported by Bloomberg today.  That's an increase of 950%! 

What's in YOUR wallet?

I'm Mike in Tucson, your preferred Tucson, AZ Mortgage lender.
Mike Jones (Tucson Mortgage Company, LLC): Loan Officer in Tucson, Pima County, Arizona
Think of me as your Tucson mortgage expert. 
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7 comments • Mike Jones • November 05 2008 09:55PM

Have We Bottomed Out in the Credit Crunch?

Is the worst behind us in the credit crunch? When my account exec from First Franklin stopped calling on me earlier this year, it seemed that the handwriting was on the wall for another mortgage lender. 

Merrill Lynch bought the mortgage unit from National City a year ago to compete with Lehman's mortgage business.  That might not have been such a good move in retrospect, but who knew?

Someone's buying the stock again, after short positions forced it down.  And Goldman Sachs' CFO is quoted in a bullish Bloomberg story on September 24th as saying "There are going to be opportunities in the mortgage business,.,and there are certainly going to be opportunities to buy distressed assets.''

First Franklin Corp. chart courtesy
Boston.com/Business

Am I too far out on a limb?  I'm an optimistic person, and Goldman Sachs has a pretty good record in fixed income bets.  ...and I miss my First Franklin Account Exec, wherever he is.  

EDIT:  Not by a long shot!  I'm still optimistic, though.

Mike Jones (Tucson Mortgage Company, LLC): Loan Officer in Tucson, Pima County, Arizona

8 comments • Mike Jones • September 26 2007 08:17AM

Canadian Lives at Risk: Unintended Consequence of Lending "Freeze"

Without critical food supplies in store before Arctic winter cuts off contact, the lives of 200 Canadian workers could have been jeopardized as an unintended consequence of the subprime debacle in the credit markets.  

Baffinland Iron Mines Corp. sends annual supplies during the warmer months of the year by the route shown on the right.  They pay for these with lines of credit.  Those lines of credit dried up last week.

Bloomberg's Rob Delaney in Toronto explained it this way:  "Sept. 25 (Bloomberg) -- Baffinland ran short of funds to pay for food, fuel and drilling equipment after investing in commercial paper that borrowers couldn't repay. Without the money, the company had to arrange an emergency line of credit before shipping lanes froze over.

`We have 200 people to keep alive,' Chief Executive Officer Gordon McCreary said in an interview in Toronto. `Our lifeline to getting critical materials to the north' was the C$43.8 million ($43.8 million) invested in commercial paper, he said."  McCreary was able to arrange for interim financing, presumably at a higher interest rate.

"SO WHAT?" you may ask.  Please read the next two paragraphs carefully.  Unintended consequences can affect our livelihood as Lenders or Real Estate agents.

Asset-backed commercial paper has been as secure an investment as one could hope for, and companies worldwide "park" their cash in these instruments.  That is, until the global credit crunch that we're experiencing right now.  Rates on asset-backed commercial paper have not been this high since 2001, when New York's Twin Towers came down.

The benchmark for commercial paper interest rates is the London Interbank Offering Rate (LIBOR.)  Mortgage lenders will recognize that as the Rate to which the majority of the 2/28 Adjustable Rate Mortgages are pegged.  The LIBOR is moving steadily up. 

The point of this story is this:  There will be unintended consequences in local economies, and LOCAL REAL ESTATE VALUES will be affected.  That's the Real Estate Opinion of this Tucson, Arizona Mortgage Lender.

Mike in Tucson,
REALTOR®/Mortgage Lender
Mike Jones (Tucson Mortgage Company, LLC): Loan Officer in Tucson, Pima County, Arizona 

7 comments • Mike Jones • September 25 2007 08:01AM