2012: The Year of Credit Changes, Scandals Part 2

As we continue to take a look back over the past year to see how far we’ve come – or not – we’re now taking a look at the second quarter of 2012, those glorious spring months. Keep reading and see if you’re able to gain any hindsight wisdom.

April

In early spring, a peculiar new trend began. The nation’s biggest banks were growing more worried with each passing day about the number of troubled mortgages on their books. Their solution to save profits was to offer homeowners the chance to earn up to $35,00 if they were willing to sell their homes for less than what they owed. Many jumped on the opportunity because they were already upside down in their mortgages. Others weren’t so sure about whether this was the solution the banks were pushing for.

Because they needed to do this in quick time, they promised homeowners they would rush their files through so that they could get the cash incentive right away. This sent up red flags, mostly because of the infamous robo signing scandal that was still fresh on everyone’s minds.

What young girl doesn’t love the spring weather and all of the new clothes that come with the changing seasons? If you’re Alex Rodriguez’s niece, you really love to shop on your uncle’s American Express. Rodriguez took both his 20 year old niece and his girlfriend on shopping spree in early April. $18,000 later, both women left their shopping sprees quite happy with their loot. Then, Rodriguez got a call from his sister stating the gifts were too much and that she’d instructed her daughter to return some of the merchandise.

Rodriguez was only allowed store credit and was unable to get a credit to his AMEX. He wasn’t happy and neither was his niece, who fired off a scathing letter to the boutique’s owner. He still had to eat the charges, though.

May

In early May, we got some startling news. The National Association of Consumer Bankruptcy Attorneys revealed that more than 1% of new bankruptcy filings with “sizable” student loan balances has increased greatly in recent years. Remember all of those tax breaks that will “instantly drop on January 1”? Well, before January 1, the magic date was July 1. The Direct Subsidized Loan is designed to not begin accrual until six months after a student graduates college. Since 2007, there have been consistent and incremental drops in the interest rate. If Congress fails to act on legislation that would keep the rate low, it will double overnight on July 1. And those same happenings could happen January 1 since lawmakers failed to meet their obligation over the summer.

Also in May, we learned mortgage rates are nearing sixty year lows. We also learned there are more consumers who won’t be able to take advantage of these lows than there are those who do qualify. Credit ratings have taken huge hits in recent years and at one time, there were plenty of folks who could have qualified for great rates on personal loans, mortgages and credit card offers. That’s simply no longer the case. The timing was great if you could take the credit hit. Too few were able to, though and the approval standards were quite high.

June

Ah…here’s a bit of true irony, considering the HSBC scandal in the news today. Less than a year after Capital One acquired HSBC, the credit card company announced it would begin shutting down several HSBC offices, including its Buffalo offices. The credit card giant said it would be closing offices through the end of the year. HSBC opted to sell parts of its company and Capital One made a smart move, seeing a 29% improvement in its returns this summer.

The irony is that many thought Capital One would become too big to fail and now, it’s actually HSBC people are turning against. Doing business with the Mexican drug cartel has that risk, after all. Meanwhile, and despite the controversy, Capital One continues to perform well and continues to have strong customer approval ratings.

It seems like a lifetime ago, but it’s only been a few months since Moody’s downgraded more than a few of the world’s biggest banks. Citing concerns about the global financial sector, 15 conglomerates were downgraded.

All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,

said Moody’s Global Banking Managing Director Greg Bauer. The statement came late on Thursday, months after Moody’s promised a “reassessment of the volatility and risks that creditors of firms…face”.

Other justifications included tougher funding conditions, which historically leave markets vulnerable. That, along with wider credit spreads and even closer looks at capital markets and their challenges, summed up the reasons as to why the downgrades were important.

For the rest of us, it meant borrowing money just became more expensive and more difficult. The credit approval process was raised, too. And we were wondering why a recovery continued to be evasive! The week of June 22, the market lost more than 250 points.

In late June, a new report surfaced that revealed a difficult new reality for Americans. Last year, 25% of Americans had no money in their savings account; this year, that number’s up to 28%. For those who believe in putting money back for emergencies or savings, many realized it was a strong money habit they might have had to put on hold. Half of Americans don’t have even three months put away and only 25% have the suggested six month cushion. This time last year, the number of those with at least three months salary cushion was at 46%.

It was a tough spring and summer in America, no doubt. Next week, we look at the last two quarters of 2012 to see how those months fared. In the meantime, what were your biggest money stories of 2012?

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