Advanta Forced to Close 1 Million Credit Card Accounts

Credit card issuer Advanta has been forced into not making any new loans after defaults have surged and the company lost its main source of funding. Shares of Advanta fell 27 percent. In a statement released late Monday, the credit card issuer announced that it would shut down approximately 1 million credit card accounts on June 10, 2009. Advanta has apparently lost its source of securitization funds. The Philadelphia based company is also being forced to purchase back up to $1.4 billion in debt issued by its main securitization trust for 65 to 75 cents on the dollar. US credit card defaults have risen to record highs as more Americans loose their jobs during the worst economic recession since World War Two.

This is unfortunate news for many people who rely on their credit cards as a source of business funds. I can understand how crucial it is to have a money source being a small business owner my self. One million more people loosing access to credit is not going to help the economy. Even though, the stock market has begun to improve, credit remains very tight. Our economy heavily relies on credit in order to survive. Credit card issuers are still not handing out as much credit as they did prior to this recession. The lack of money being invested in credit card asset backed securities has nearly frozen credit access. This has caused businesses to shut their door, cut employee hours or eliminate jobs whenever possible.

The Obama Administration has been working hard trying to fix the economy. The economic stimulus package will hopefully create jobs once again in our economy. These jobs will give consumers the ability to pay their debt once again. Securitization markets will start to flow once unemployment stabilizes and the economy begins to go back to normal.

Labels: Advanta Credit Cards, asset backed securities, unemployment rate

Lawmakers planning to create a Financial Products Safety Commission


Lawmakers announced today a plan to create a Financial Products Safety Commission that would oversee financial products such as mortgages credit cards, auto loans and retirement accounts. This commission would be similar to the Food and Drug Administration that oversees consumable consumer products. One of the main purposes of this commission is to oversee the mortgage industry. Mortgages have changed and become more complex in recent years. Not only are they more complicated, some of them are also predatory in nature. Many mortgage loans that were offered to people were very destructive. I heard about one company from California that was offering people the ability to pay half of the interest while the other half portion of the interest would be accrued on your principal. Once the mortgage re adjusts, these people are then forced to pay a much higher monthly payment then they could actually afford. Some people were duped into these types of loans while others did not plan how they were going to afford the house in the future. Mortgage brokers were more than happy to facilitate these types of loans as well. Everyone was making money, and people were moving into new houses. Unfortunately the house of cards came crumbling down.

Lawmakers are also looking at regulating the mortgage backed securities markets as well. They want to be requiring that loan originators stay with a portion of the loan to ensure that they have a vested interest that the securities will perform over the long run. Quite frankly, I don’t think that is going to be a good idea. I think credit originators should be able to sell their securitized products freely. The emphasis should be placed on the rating agencies. Regulators need to make sure that the rating agencies are generating unbiased ratings. During the housing bubble the rating agencies were manipulating their scoring methods in order to come up with AAA credit ratings. Rating agencies were under pressure to please banks that in turn wanted to sell more mortgages. Had the rating agencies been more scrupulous and under more regulation, banks would not have a choice then to be careful.

The creation of the securitization markets has helped our country. If banks were not allowed to package and sell their loans, our country would not have been able to grow as it has. Securitization markets have allowed investors the ability to build shopping centers, homes, hotels and all sorts of other infrastructure projects. These projects created jobs that fed our economy for many years. After the fall of Lehman Brothers, these securitization markets have all but dried up creating a lack of credit in our economy. This lack of credit has spurred a viscous cycle that has created job loss and financial hardships. I am in agreement that there needs to be more regulation in certain areas. I only hope that regulators will regulate and strangulate these markets.

Labels: asset backed securities, auto loans, credit cards, Financial Products Safety Commission, Lehman Brothers, securitization markets

Will TALF Unthaw the Securitization Markets?

President Barrack Obama and his team of economical advisors revealed the final details regarding the latest bailout program. The TALF (Term Asset Backed Loan Facility) is supposed to provide investors with cheap financing to purchase asset backed securities. Asset backed securities are basically a group of loans that are bundled, given a value, and then sold to investors to reap the profits. Many of these investors are institutional type investors (pension funds, life insurance companies, etc) or foreign investors coming from China, India and the Middle East. Since the Failure of Lehman Brothers these securitization markets have all but dried up. The result has been the loss of credit and a deep recession that our country has not seen since World War II.

The TALF fund is supposed to provide up to $1 trillion in funding for investors to start to purchase these loans once again. However, a lot of people argue that the securitization system is broken. The problem that created this whole mess was the fact that these securities are being rated by independent private credit rating agencies. The credit agencies then rate these securities for investors based on the creditworthiness of these bundled loans. A “AAA “ rating is considered the best, while a “BBB” rating is considered the worst or sub prime. During the housing boom, these credit agencies began “loosening” their standards as to what qualifies a “AAA” rating. “BBB” rated loans were being given a high rating and begin sold to unsuspecting investors. The foreclosure rate on those mortgage asset backed securities and subsequent losses has spooked investors from other types of asset backed securities like credit cards, auto loans and student loans.

The TALF is supposed to insure those loans in case they begin to default. This is supposed to increase investor confidence. Who is going to rate these securitized loans now? If the same credit rating agencies like Moody’s Investors Services or Standard and Poor’s continue to rate the bonds, no one is going to believe them. The government needs to somehow revamp these credit agencies and restore credibility once again. The TALF program is supposed to give investors a renewed sense of security. At this point, I do not understand it 100%, but I am spending some time trying to figure it out.

The bottom line is that we need these securitization markets to start working once again. The lack of credit has spurred huge problems in our economy. Not one sector of the economy has gone unaffected in my opinion. Retailers and other vendors rely on credit to sell consumer products like cars, televisions, clothes, etc. The loss of sales from credit has forced many companies to lay off workers. I am confident that one way or another we will figure a way to get credit flowing again. Once that happens life as we knew it will manifest itself once again.


If you are looking for a way to borrow money (you must have very good credit) or for a way to invest some money, try “The Lending Club”. The lending club allows small investors to invest in securitized loans like the big fish. You (and 50 to 1200 others) will earn interest for lending qualified applicants money to consolidate credit card debt or even start a business. View each applicant’s stats online and make your own decision.

Labels: asset backed securities, credit, economic recesion, institutional investors, President Barrack Obama, TALF, The Lending Club

When will the economy get better?

The credit crisis has affected everyone in the United States and is now spreading around the world. The Obama Administration just signed a $787 billion stimulus package that is supposed to end this economic downfall. The only problem is that Wall Street does not seem to respond to the news. The Dow Jones Industrial Average continues to fall despite all the efforts the government is making. Job losses continue to mount and government funding at the state level is drying up. Obama keeps telling us the economy is going to get worse before it starts to get any better. The American people, including myself are tired of hearing the same speech and continue to watch the economy further deteriorate. The biggest question on my mind and everyone else’s mind is when the economy will get better.

I do not believe that the economy will get any better until the government gets the housing crisis under control. The losses from the housing market continue to bog down the balance books of our nations largest banks. Bankers are afraid to lend more money because of the massive amounts of losses that they are experiencing in the mortgage industry. The sub prime mortgage market has damaged the economy beyond control. The government should buy up these “toxic assets” from the banks and work and figure a way to work with homeowner’s so that they can keep their houses. The problem is that many of these people have purchased homes that they simply can not afford. These people need to be flushed out of the market and replaced with homeowners that are able to keep up with the payments. Banks will be able to start lending money once bad assets have been cleared off their balance sheets. In the meantime, the government can hold onto the unoccupied housing inventory and sell it off as times get better. The people who could not afford their homes must become renters once again.

The other major factor affecting the economy is the lack of consumer credit available. Everything from retail sales to automotive sales has seen significant losses in sales volume since the credit crisis began in September of 2008. The problem is the lack of investors purchasing consumer backed securitized assets. The problems in the mortgage market have spooked investors away from these types of investments. The Obama Administration is supposed to unveil the TALF (Termed Asset Backed Loan Facility) to help unfreeze consumer credit. They have expanded this program from $200 billion to $1 trillion. Under the TALF program, the government is supposed loan money to investors who are going to purchase asset backed securities such as auto loans, student loans and credit card loans.

I am trying to figure out the TALF program but I do not completely understand how this is going to work. The only thing that I do understand is that the only way we are going to get this economy back in shade is to unfreeze the credit markets. The ability to sell these asset backed securitized investments on world wide market is going to be crucial. Unfortunately, the shenanigans of many an unethical mortgage broker has scared away investors from asset backed securitized investments. Once the housing market stabilizes investors will start to move towards these types of investments. It will be up to the Obama Administration to do anything possible stabilize housing and instill confidence in investment markets once again.

Labels: asset backed securities, auto loans, credit cards, credit crisis, TALF