E-Trade sees “deteriorating credit”

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Good morning, again. Interesting little tidbit from E-Trade, part of the company’s explanation of why its earnings will come in well below forecasts: the company sees rising delinquencies in home-equity loans, ‘many taken out by homeowners who had good credit but had borrowed excessively.’

This makes perfect sense, but we don’t see this logic very often from corporate America: that the housing bubble encouraged some consumers to borrow recklessly, taking on more debt than they can handle, and the result is that some individuals with previously good credit records are missing payments: ‘A lot of consumers with previously good credit scores have taken on a higher debt load than they normally would have, and that’s where you see the deteriorating credit performance,’ said Jarrett Lilien, E-Trade’s president and chief operating officer.

Again, makes perfect sense, we rarely hear it from the companies that made the loans. The economic impact here is significant: you’re talking about borrowers who tapped their home equity, and temporarily spent beyond their means, pumping up economic activity. Now the borrowing-and-spending binge is over, the money is spent, and they are having a hard time paying it back.

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