Currents | Lighting: The Victory Lamp, From Novaled, Features OLEDs

The Victory lamp made by Novaled features a new type of light source: organic light-emitting diodes, or OLEDs, which produce a more diffuse light than traditional LEDs.

Credit Defaults Increase, Led by Mortgage Markets

Bank cards were the only type of
consumer debt to see a decline in defaults during December according to data
released today by S&P Indices and Experian. 
The S&P Experian Consumer Credit Default Indices showed increased
defaults in both first and second mortgages and in auto loans.  Driven primarily by the increase in mortgage
defaults, the national composite index rose from 2.22 percent in November to
2.24 percent in December, the highest rate since April of 2011.  In December 2010 the Index stood at 3.01

The default rate for second mortgages increased
from 1.26 percent to 1.33 percent, auto loan defaults rose to 1.27 percent from
1.17 percent and first mortgage defaults increased to 2.19 percent from 2.17
percent.  The default rate for bank cards
however dropped from 4.91 percent to 4.60 percent.  All rates have improved from those of one
year earlier when the default rate for second mortgages was 1.74 percent; first
mortgages, 2.93 percent; auto loans, 1.69 percent; and bank cards, 6.73

“Led by the
mortgage markets, the second half of 2011 saw a slight reversal of the two-year
downward trend in consumer credit default rates,” says David M. Blitzer,
Managing Director and Chairman of the Index Committee for S&P Indices.
“First mortgage default rates rose for the fourth consecutive month, as did the
composite. Since August, first mortgage default rates have risen from 1.92% to
the 2.19%. The composite also rose those months, from 2.04% to 2.24%.  The
recent weakness seen in home prices is reflected in these data.  Bank card
default rates, on the other hand, were favorable, falling to 4.6% in December.
This is more than a full percentage point below the 5.64% we saw as recently as
July 2011.

S&P Experian data highlighted
five Metropolitan Statistical Areas (MSAs). 
Three of the five showed increases in default rates for the month: Miami
increased from 4.47 percent to 4.73 percent; Dallas from 1.38 percent to 1.56
percent, and Los Angeles to 2.54 percent from 2.53 percent.  Chicago was unchanged at 2.84 percent and New
York decreased from 2.21 percent n November to 2.13 percent in December. 

Blitzer said
of the MSA data, “Given what we know about the mortgage markets, it is likely
that these cities are seeing this recent weakness because their housing markets
have still not stabilized.”


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OCC Notes Fewer Banks Tightening Underwriting Standards

The Office of Comptroller of the Currency
(OCC) recently completed its 18th annual “Survey of Credit
Underwriting Practices
.” The survey seeks to identify trends in lending
and credit risks for the most common types of commercial and retail
credit offered by National Banks and Federal Savings Associations (FSA).  The latter was included for the first time in
this year’s survey.

The survey covers OCC’s examiner
assessments of underwriting standards at 87 banks with assets of three billion
dollars or more.  Examiners looked at
loan products for each company where loan volume was 2% or more of its
committed loan portfolio.  The survey covers
loans totaling $4.6 trillion as of December 31, 2011, representing 91% of total
loans in the national banking and FSA systems at that time.  The large banks discussed in the report are
the 18 largest by asset size supervised by the OCC’s large bank supervision
department; the other 69 banks are supervised by OCC’s medium size and
community bank supervision department. 
Underwriting standards refer to the terms and conditions under which
banks extend or renew credit such as financial and collateral requirements,
repayment programs, maturities, pricings, and covenants.

The results showed that underwriting
standards remain largely unchanged
from last year.  OCC examiners reported that those banks that changed
standards generally did so in response to shifts in economic outlook, the
competitive environment, or the banks risk appetite including a desire for
growth.  Loan portfolios that experienced
the most easing included indirect consumer, credit cards, large corporate,
asset base lending, and leverage loans. 
Portfolios that experienced the most tightening included high
loan-to-value (HLTV) home equity, international, commercial and residential
construction, affordable housing, and residential real estate loans.

Expectations regarding future health of
the economy
differed by bank and loan products but examiners reported that
economic outlook was one of the main reasons given for easing or tightening
standards.  Others were changes in risk
appetite and product performance. Factors contributing to eased standards were changes
in the competitive environment, increased competition and desire for growth and
increased market liquidity. 

The survey indicates that 77% of
examiner responses reflected that the overall level of credit risk will remain
either unchanged or improve over the next 12 months.  In last year’s survey 64% of the responses
showed an expectation for improvement in the level of credit risk over the
coming year. Because of the significant volume of real estate related loans,
the greatest credit risk in banks was general economic weakness and its results
and impact on real estate values.   

Eighty-four of the surveyed banks (97
percent) originate residential real estate loans.  There is a slow continued trend from
tightening to unchanged standards with 65 percent of the banks reporting
unchanged residential real estate underwriting standards.  Despite the many challenges and uncertainties
presented by the housing market, none of the banks exited the residential real
estate business during the past year however examiners reported that two banks
plan to do so in the coming year.  Additionally,
examiners indicated that quantity of risk inherent in these portfolios remained
unchanged or decreased at 81% of the banks.

Similar results were noted for
conventional home equity loans with 68% of banks keeping underwriting standards
unchanged and 18% easing standards since the 2001 survey.  Of the six banks that originated high
loan-to-value home equity loans, three banks have exited the business and one
plans to do so in the coming year

Commercial real estate (CRE) products
include residential construction, commercial construction, and all other CRE
loans.  Almost all surveyed banks offered
at least one type of CRE product and these remain a primary concern of examiners
given the current economic environment and some banks’ significant
concentrations in this product relative to their capital.  A majority of banks underwriting standards
remain unchanged for CRE; tightening continued in residential construction and
commercial (21 percent and 20 percent respectively).  Examiners site cited the distressed real
estate market, poor product performance, reduced risk appetite and changing
market strategy as the main reasons for the banks net tightening.

Nineteen banks (22 percent) offered
residential construction loan products but recent performance of these loans
has been poor and many banks have either exited the product or significantly
curtailed new originations.

Of the loan products surveyed 17% were originated
to sell, mostly large corporate loans, leveraged loans, international credits,
and asset based loans.  Examiners noted
different standards for loans originated to hold vs. loans originated to sell
in only one or two of the banks offering each product.  There has been continued improvement since
2008 in reducing the differences in hold vs. sell underwriting standards and
OCC continues to monitor and assess any differences.

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Census: Drop in Net Worth Echoes Home Equity Loss

New comparative tables from the 2010 Census underline both
the importance of homeownership to building wealth
and the havoc wrecked by the
recession on that wealth
.       The Census
Bureau released detailed data on the type and value of assets owned by U.S. households
in 2005, 2009, and 2010.  We are
presenting a summary of the 2005 and 2010 figures based on actual numbers not
adjusted to 2010 dollars.  All numbers
represent U.S. medians.

The net worth of U.S. households was $93,200 in 2005, but had
dropped to $66,740 by 2010, a decrease of $26,460 or 28 percent.  Of this decline, $20,000 or 75.6 percent
could be attributed to loss of equity, from a median of $100,000 to $80,000
over the five year period.  Thus
household net worth, outside of home equity, declined from $18,150 to $15,000.

The median value of stocks and mutual funds declined from
$24,600 to $18,400, however the value of IRA/KEOGH accounts from increased from
$23,000 to 30,000 and 401K & Thrift Savings from $25,000 to $30,000.  Rental property equity declined, but not as
severely as the primary residence of households, from $10,000 to $170,000.  Other real estate equity was up marginally
from $74,000 to $75,000. 

It is important in analyzing the figures to recognize that
not all respondents owned a home or any of the other assets included in the
survey.  The differences in numbers reflect
changes in the population of those who do have such assets.

There were marked differences in how households fared over
the five years by race and age.  White
non-Hispanic households saw their net worth drop from $130,350 to $110,729 and
the equity in their home from $100,000 to $84,000.  Black and Hispanic households lost more than
half of their net worth with Black wealth dropping from $11,013 to $4,955 and equity
falling $70,000 to $50,000.  Hispanic
households went from a net worth of $17,078 to $7,424 and equity from $90,000
to $40,000.

The most interesting household wealth v home equity figures,
however are in the age cohorts.  Older
households lost dramatically less equity than did younger households.  The largest loss was among households in the
35 to 44 age range where the median home equity fell 45.45 percent.  Those less than 35 years of age saw equity
drop 31.5 percent.  The other two pre-retirement
cohorts – 45-54 years and 55-64 years were down 27.7 percent and 20.0 percent
respectively.  Then there was a
precipitous drop to a median loss of equity in the over 65 age group with the
three age groups within this category losing a median of 3.6 percent.   

This of course makes sense as older households had much more
equity to begin with so the rapid home price depreciation did not affect them
as severely on a percentage basis.  It is
harder to understand why they also were not as hard hit in the actual dollars
lost.  Those over 65 years of age had a
median loss $5,000 while those in the younger age groups saw their equity erode
by double digits.  

Whatever the reason, the stability of their home’s value was
reflected in the household wealth of older Americans.  The net worth of younger groups was down from
17 percent to 55 percent while the older households had a median decrease of
4.16 percent.  One of the older age
groups – 65 to 69 – had an actual increase of 2.36 percent although that was
offset by a near 10 percent decrease in the net worth of those 70 to 74 years
an age group that seemed to have suffered disproportionately from decreases in
IRA and 401(k) assets.

Change in Equity and
Net Worth – 2005-2010

Age Group

NW Change $

NW Change %

Equity Change $

Equity Change %

Under 35



$ 23,000


35 – 44





45 – 54





55 – 64





65 +





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Annual Foreclosure Rate Declines for 20th Straight Month; Nevada Gives Up Top Spot

topped 200,000 during May for the first time in two months but filings
were still below the rate a year earlier according to the U.S. Foreclosure
Market Report released by RealtyTrac this morning.  A total of 205,990 properties or one in every
639 housing units received some type of foreclosure filing during the month
compared to 188,780
in April, an increase of 9 percent.  Despite
the increase, filings were down 4 percent from May 2011 marking the 20th
straight month that year-over-year figures fell.  Judicial
states posted a 26 percent annual increase in overall foreclosure activity
while non-judicial states were down 20 percent.

RealtyTrac is an Irvine, California firm
that tracks three categories of foreclosure filings gathered from county level

    “U.S. foreclosure activity has now
    decreased on a year-over-basis for 20 straight months including May, but the
    jump in May foreclosure starts shows that it’s going to be a bumpy ride down to
    the bottom of this foreclosure cycle,” said Brandon Moore, CEO of RealtyTrac.
    “Based on the rise in pre-foreclosure sales we’ve seen so far this year, a
    higher percentage of these new foreclosure starts will likely end up as short
    sales or auction sales to third parties rather than bank repossessions going
    forward. While pre-foreclosure sales have less of a negative impact on home
    values than bank-owned sales, they still represent a discounted sale where a
    distressed homeowner is losing his or her home.

    For the first time in years Nevada
    no longer topped the nation in foreclosure activity
    , falling to third place
    with 3,755 filings, a 4 percent decrease since April and 66 percent less than a
    year earlier.  One in every 313 housing
    units in Nevada received a filing. 
    Georgia leapt into first place with a 33 percent increase in activity in
    one month and was up 30 percent from May 2011. 
    One in every 300 Georgia housing units was affected by foreclosure
    during the month.  

    Arizona’s foreclosure activity rose
    24 percent in May, putting it in second place among the states despite the fact
    its rate, one in every 305 housing units, was down 29 percent from a year

    Foreclosure starts were filed on
    109,051 U.S. properties in May, a 12 percent increase from April and a 16
    percent increase from May 2011. This was the first time in 27 months that
    foreclosure starts increased on an annual basis. Starts were up year-over-year in
    33 out of 50 states with the largest annual increases in Tennessee (165
    percent) New Jersey (118 percent), Pennsylvania (97 percent), and Florida (83
    percent).  Massachusetts, Texas, and New
    York also saw starts rise by more than 50 percent.

    After three straight monthly
    decreases to a 49-month low in April, bank repossessions (REOs) increased in
    May, rising 7 percent. Lenders completed the foreclosure process on 54,844 U.S.
    properties during the month.  This was
    still a decrease of 18 percent compared to May 2011.

    RealtyTrac attributes some of this
    to a widening acceptance among lenders of the value of pre-foreclosure
    , usually short sales where the bank accepts less than the amount it is
    owned to allow the sale of a home to a third party.  Moore said, “More banks are now recognizing
    that treating the problem of delinquent mortgages with short sales rather than
    bank repossessions can help them minimize their losses and also avoid taking on
    more REOs, which they then have to manage, maintain and market for sale.”

    “Disposing of distressed homes by
    pre-foreclosure sale can also benefit lenders and servicers because
    pre-foreclosure homes sell at a higher average price point than bank-owned
    homes,” he continued. “Our first quarter foreclosure sales report showed that
    the average price of a pre-foreclosure home was more than $27,000 higher than
    the average price of a bank-owned home – which quickly adds up given that there
    have been an average of 1.6 million nationwide foreclosure starts per year for
    the past five years.

    REO activity increased on an annual
    basis in 17 states in May, including North Carolina (66 percent), Illinois (65
    percent), and Massachusetts (59 percent). 
    There were large decreases in Nevada (68 percent), Arizona (43 percent),
    Michigan (42 percent), and Colorado (42 percent).

     Riverside California, Atlanta,
    and Phoenix had the highest foreclosure rates among the 20 largest metropolitan
    areas in the country followed by Chicago and the Tampa-St. Petersburg area in

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