Something to think about while shopping…
Over the holidays, the Associated Press reported on just how serious delinquent credit card debt had become. Here’s a snippet:
The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP…At the same time, defaults — when lenders essentially give up hope of ever being repaid and write off the debt — rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.
What interested me here was not the growing problem (though of course that’s important), but the fact that this sort of data was publicly available in SEC filings — something I wasn’t aware of since I don’t tend to spend much time looking at exhibits to 10-Ds, like this one that was filed last week by BA Master Credit Card Trust II, a Bank of America (BAC) entity. That filing was for the month ended Nov. 30, which means that it’s before people really went wild on their credit cards. But the fact that delinquencies equal 5.53% of the portfolio, or $5.18 billion dollars is pretty shocking, especially when you compare it to the exhibit to the 10-D filed a year earlier which showed just over $4 billion in delinquent balances. The big growth, judging by these two filings, has been in delinquencies between 60 and 89 days.
But why stop at credit cards, since just like sub-prime mortgages, it’s just another product that’s been sliced and diced? A quick skim of recent 10-Ds turns up this fascinating exhibit filed last week by BMW Vehicle Lease Trust 2007-1. Because this is a relatively new trust, there’s not enough history to go back a year. But going back one month shows a small, but potentially dangerous trend: at the end of October, there was only 1 loan in this trust that was 90 days or more late. But by the end of November, that had risen to 30. Granted, it’s a small number, but it’s still a 30-fold increase from one month to the next. And it’s presumably in a segment of the economy that’s about as far removed from sub-prime mortgages as you can get.
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December 26th, 2007 at 7:47 pm
Michelle,
Great blog! Enjoyed your appearance on “Marketplace” this evening.
On this post specifically, I think it’s very timely to encourage readers to focus more of our “footnote time” on clues to development of the subprime situation.
That being said, I’d recommend caution in our interpretation of the 1-month change in 90-day delinquencies for the BMW Vehicle Leasing Trust. Because the trust is only two months old, it may be too early for increases (even 30-fold ones!) to be statistically meaningful.
This brings us back to a great point you emphasize quite often on your blog, which is that footnote-readers should be especially attentive to **Changes** in footnotes (e.g. something is true that wasn’t true before…). To apply this best practice to reports that contain updates on credit performance of asset-backed credit trusts, we’d want to compare against the results at other, similar trusts at the same stage in their “life cycke” (for example, how did BMW’s similar trusts, issued a year earlier, perform in month #2…)
Again, thank you sincerely for your contributions to the world of footnote literacy!
Sincerely
Jaime Fitzgerald
President
Fitzgerald Analytics, Inc.
December 27th, 2007 at 9:30 am
Agreed, Jaime. I certainly don’t want to be one of those journalists who touts a 30-fold increase without putting it into perspective. Thanks for your feedback.
December 27th, 2007 at 7:33 pm
In the Bay Area at least, BMW leasers are probably very much in the center of the sub-prime mortgage fiasco.
With our outrageous housing prices, a couple can make $200,000 combined, and still have a no money down, interest only mortgage on a $900,000 fixer-upper in an up-and-coming neighborhood. And it is quite likely they would drive a 3-series BMW, Lexus IS, etc.
You skip a few car payments first before you miss your house payment…
December 28th, 2007 at 12:40 am
Likewise, I agree with Robert. In my community (Irvine CA), homes range in value from $400k to about $2.5m. In driving along the roads, one is just as likely to spot a minivan or Ferrari in either end of the spectrum.
January 24th, 2008 at 7:29 am
Does anyone know what requires BAC to make this 10-D filing with the SEC and not to the trusts’ trustees for distribution? Can anyone please explain or make reference to sites that explain the standard required disclosures for other asset-backed trusts?
Much thanks in advance.
January 24th, 2008 at 5:37 pm
I don’t know, but maybe one of my other smart readers knows. Unfortunately, I’m pretty new to 10-D filings.