Debtor Nation

Look at the graph to the right. I find it quite peculiar that the Personal debt (in trillions) equals the size of the National Debt. Food for thought.

Debtor Nation

Posted by TOM BEVAN

The graphic to the right, from a column on the debt that is crushing the middle class in today's Detroit Free-Press, pretty much says it all.

Over the past few weeks as the economic crisis has come into hideous focus, we've spent a lot of time blaming Wall Street executives and a lot of time blaming Congress, both deservedly so.
One area we haven't spent enough time focusing on is the millions of Americans who helped get us into this mess by taking on more debt than they could afford. There are many sad and tragic stories among this group, of course, and while we don't want to dismiss or denigrate them, it's fair to point out they represent only a small portion of those who've gotten into trouble by overextending themselves financially.

More important still is to recognize the millions upon millions of Americans who've managed their finances prudently, lived within their means, and continued to make payments on time even as they are saddled with the burden of bailing out those who did not.
Credit card companies and other businesses will always be there to ply us with sweet nothings about low interest loans and the like. Too often over the last twenty years, however, it seems more and more Americans have fallen victim to that siren song and rejected the truism which our fathers, grandfathers, and even Founding Fathers lived by: there's no such thing as a free lunch.

At its core, then, this is a story about individual freedom and individual choices. Nobody put a gun to the head of the 28 year-old University of Michigan graduate in the Detroit Free-Press story and forced him to buy a house with a $150,000 mortgage - any more than someone forced his fiancee to ring up $15,000 in credit card debt.

The most nauseating part of this debacle is that the United States government - which long ago perfected the habit of living beyond its means - was an active participant in helping some Americans shed the inhibition of fiscal prudence and embrace the notion we can afford it all - even when we know we can't.

The true irony, of course, is that because some Americans exercised their individual freedoms irresponsibly in the last decade we've now all become less free, assuming you measure such things by the number of additional taxpayer dollars committed to Washington's coffers ($700+ billion) and by unprecedented expansion of the U.S. government into what was previously considered the "private sector."

Repo Madness

The following appeared on page 1A of the Tuesday May 13, 2008 issue of the St. Paul Pioneer Press.

Late on a car payment? Beware. Delinquencies are rising, and impatient lenders aren't waiting long to call out the tow trucks.

By Jennifer Bjorhus and Nicole Garrison-Sprenger
Pioneer Press

It's 3 a.m. - do you know where your car is? If you're late on payments, your local towing company probably does.

High and rising auto-loan delinquencies, now above 2001 recession levels by one measure, are speeding u action in the repossession lane. Some Twin Cities car and truck towing companies are reporting a significant uptick in orders from lenders, which they attribute to mounting economic ressures on stretched borrowers.

But accelerating debt collection by lenders appears to be another factor in the rise of repossessions. The country's top auto lender, for instance, said it is cracking down on delinquencies and "moving up the timeline" on recovering unpaid debt.

It's not just the auto industry that's getting more aggressive. Some department stores and retailers are accelerating action on delinquent accounts, according to a Twin Cities debt collectors association, because they too need the cash to pay bills.

All Corey Albertson knows is business is hot after a slow winter.

"Probably in the last four weeks our fax machine started kind of getting bombarded with more repossessions," said Albertson, president of American Towing and Recovery in Hastings.

Auto lenders pay Albertson $300 to $500 to tow away cars and trucks, typically after borrowers are 90 days late on payments. Like other companies, his crew usually works from 2 a.m. to 5 a.m.

"That way, most people are in bed and don't see us coming," Albertson said.

Many of the car owners Albertson deals with are families with two or more vehicles who are prioritizing bills and let the extra car slide, although he recently repo'd the cars of a husband/wife Realtor team in Shakopee who lost their Cadillac and Jaguar. Albertson said he's repossessing more SUVs and trucks than before, which he attributes to the escalating cost of filling up the tanks.

Across the board, nearly all the auto lenders Albertson works with have boosted orders recently, he said. But he's seen particular growth with First 1 Financial Corp., a subprime auto financer out of Massachusetts. First 1 Financial didn't return phone calls.

Missy McMurray, owner of an American Lenders Service Co. franchise in St. Paul and Hudson, Wis., said her Minnesota vehicle repo accounts nearly doubled in the first quarter from a year ago. There's been a notable increase in semi-truck repos, said McMurray, who also attributes it to rising fuel costs. McMurray declined to name the lenders she works with.

"I just think more people are falling behind," she said.

Some auto lenders have responded accordingly.

Bobbie Britting, senior analyst in consumer lending at Needham, Mass.-based researcher TowerGroup, said auto lenders are "not waiting as long as they used to" on delinquencies. That varies by the type of portfolio, she said, such as whether it's prime or subprime loans to borrowers with poorer credit.

Detroit-based GMAC Financial Services, the nation's largest auto lender, told analysts in a February conference call that it has added 400 collections associates and has accelerated contact with borrowers. Spokesman Mike Stoller said in an interview that most auto finance companies contact consumers with a letter or call after a borrower is 30 to 45 days late on a payment. If payment is still due after 90 days, lenders turn to more aggressive tactics.

"While repossession isn't likely to happen on day 91, that kind of activity comes into play," Stoller said.

Banks are in "clean-up mode," Mike Jackson, chief executive of Fort Lauderdale, Fla.-based AutoNation, told analysts two weeks ago. Lenders are "accelerating repossessions on any vehicle that they see out there that has a question mark over it. They are proactively trying to deal with it now rather than later," said Jackson, whose company is the country's largest auto dealer.

Along with the uptick go disputes. At least one Twin Cities attorney reports more wrongful repo calls coming in. Tom Lyons Jr., president of the Consumer Justice Center, a Vadnais Heights law firm, said he's preparing to file two such cases. In one, a Hugo woman alleges she climbed into her car in her attached garage to go to work early one recent morning, and after she opened the garage door, a repo crew raced in and dragged her out of the car.

"I think the banks are getting more aggressive on their willingness to wait for consumers to catch u," Lyons said.

Not everyone is rolling in new orders. "The business is either chicken one day or feathers the next," said Dale Hedtke, owner of Midwest Recovery Bureau Inc in Maple Grove.

National Asset Recovery Group in Wayzata, which specializes in repo'ing heavy equipment, aircraft, RVs and large boats, said business is up, but the repo trends are different for larger vehicles.

President Dan Paselk said his boat business is up at least 15 percent from last year. He attributes most of the surge, at the moment, not to eager lenders but to the fact boat owners recently hauled their big toys out of storage, where repo crews cannot easily get to them and have them parked on the water.

Lenders are less aggressive about repossessing such large equipment because they're much harder to liquidate in a slow economy than cars and trucks, Paselk said. Some lenders are rewriting loans on these big-ticket items, doing what they can to accommodate strapped borrowers, he said, because they don't want the equipment back.

"if they get back a Caterpillar and they have a $50,000 loan on it, they're better off rewriting the loan than running it through the auction," said Paselk. "These big-ticket items aren't selling."

Consumer lenders are going after rising delinquencies harder. Rozanne Andersen of ACA Internation, an Edina-based debt collectors association, said she sees a growing number of department store and smaller retailers both locally and nationally cracking down on delinquent accounts by starting the collections and recovery process much sooner. Most companies opting to accelerate the start of the debt collection process are cutting down the time they're willing to wait for payment by one-third, Andersen said.

"Businesses are in need of cash," she said. "They have determined they cannot afford to wait as long as they may have in the past before sending a debt to collection."

Albertson, at American Towing, said he feels the pinch of high fuel costs as his trucks rumble about picking up vehicles.

"I used to drive a Lexus SUV, and I sold it, and I went out and bought an older Honda Civic," he said. "It's a huge step down, but you have to."