TowerGroup: Subprime Lending Meltdown Fuels Risk and Opportunity for Creditors

NEEDHAM, Mass., Sept. 24 /PRNewswire/ — The effect of the subprime mortgage meltdown continues to radiate out across the credit markets. Alan Greenspan , the former Federal Reserve Chairman, stated in recent interviews there is a one in three chance of a US recession. New research from TowerGroup explores the impact on consumer debt and credit cards.

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In analyzing four key economic factors that influence both the US economy and consumers’ spending behaviors — unemployment, consumer debt, consumer confidence, and consumer savings — TowerGroup forecasts that even as consumers moderate their spending in the coming months, the number of consumer loan delinquencies will continue to rise. Rate relief from federal regulators is only the beginning of the story. Mortgage lenders are likely to bend to public and government pressure to be more flexible when making repayment arrangements with mortgage customers to prevent foreclosure.

While the subprime mortgage credit collapse has tightened credit availability in both consumer and commercial markets, banks appear to be anticipating the need to slacken credit standards for specific products like credit cards in an effort to accommodate credit needs and increase balances. TowerGroup believes this lowering of approval standards signals that credit card lenders are preparing to attract and grow balances previously lost to home equity lines of credit (HELOCs), which now unavailable to many consumers.

The loosening of standards for certain products represents an opportunity for businesses that support credit card lenders with products aimed at new customer acquisition. Marketing companies, software providers, and credit/risk scoring companies will benefit from this shift. But while credit card issuers have the opportunity to attract new customers, not everyone will be looking for additional credit. TowerGroup expects continued growth in the prepaid and debit card segments as well as a continuing shift in dollar volume to transactors for households unwilling or unable to take on additional debt.

The new TowerGroup research report titled “Subprime Mortgage Meltdown: Upside for the Credit Card Business?” by Dennis Moroney , senior analyst in TowerGroup’s Bank Cards practice, offers insights on the market risks and opportunities for credit card issuers and their vendors and partners. The report also examines economic factors and consumer purchase behavior as well as trends in the credit card industry.

The report is available to qualified members of the press for review. To request a copy or to arrange an interview with Moroney, please contact Jorge Lavina at +1.212.455.8041 or jlavina (at) cooperkatz (dot) com . Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email service-info (at) towergroup (dot) com .

Sign up for the bi-weekly newsletter, TowerGroup News, to stay informed on the latest research and events. To learn more, visit: http://ui.constantcontact.com/d.jsp?m=1101074606706&p=oi .

About TowerGroup: TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe , TowerGroup serves a global client base. Visit http://www.towergroup.com for more information.

Contact: Jorge Lavina jlavina (at) cooperkatz (dot) com +1-212-455-8041

SOURCE TowerGroup

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