The current UK mortgage and financial crisis is unprecedented and with few tools and resources to help them understand and predict the direction of today's financial events, many industry experts have begun to look across the pond. One of the only reliable methods anyone has come up with in the past 18 months to accurately predict when the next shoe will fall as the credit crunch continues to trample the UK is by studying the situation unfolding in the USA.
o While the UK is several hours ahead of the USA in terms of time zones the Americans tend to be a few weeks or months ahead of us when it comes to the banking and housing debacle.
o When the subprime disaster started it soon migrated like an infectious virus and found its way into the portfolios of our own British institutions like Northern Rock.
o As lenders began to withdraw credit from customers in the states, banks in the UK initiated their own proactive strategies by tightening their purse strings here.
o And when house prices collapsed and foreclosures soared in the USA, property brokers in the UK noted the first signs of increased delinquencies, defaults, and house repossessions.
Now a new phase of the global crisis is beginning to emerge. The largest mortgage agencies in the USA recently reported that they are suffering an avalanche of losses related not to subprimes but to the higher quality mortgages. The default rates for categories of loans made to those with excellent credit are beginning to escalate. One of the strongest and most stable financial institutions in the USA - and in the world - is JP Morgan Chase. But the bank's CEO was recently quoted in the news media when he called prime mortgage performance "terrible" and suggested that the number of losses connected to that highest quality category of loans may soon triple.
o People with good credit, in other words, are now considered a risk for not repaying their loans.
o In response, banks are either eliminating or cutting back on almost of their loans made to customers who do not have stellar credit and spotless track records for timely repayment.
o One of the only options left for consumers looking for decent loans is now "bad credit loans" - those loans made by lending institutions that specialise in offering credit to people who have damaged credit or have been turned down for other reasons by the traditional mainstream banks.
Fortunately for Brits, many of our bad credit loan companies did not make the mistakes that were made by conventional lenders, so they have weathered the current crisis without significant losses. That means that they have cash - and are willing to loan it to those who need it most - at a time when some of the nation's most dependable lenders are proving to be unreliable and incapable of serving the needs of their customers.
The new phase of the deteriorating American situation will come ashore in the UK soon - if it has not already landed - and our domestic markets are already gearing up for the next big wave of credit problems. Loan approvals have already dropped 40 percent since last year, reports The Guardian, but with this new storm of depressing news on the way, consumers can expect to see that figure rise dramatically. Meanwhile lenders of loans for bad credit are stepping in to fill a growing need as the credit crunch expands, and they may be the only source of funds for average Brits for a long time to come.
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