Fed: Banks Tightening Lending Standards

(AP)  A majority of the nation's banks have tightened lending standards on subprime mortgages, the Federal Reserve said Monday in a survey that provided further evidence of the spreading problems in mortgage lending.

The Fed said it found that 56.3 percent of banks responding to a survey reported that they had tightened their lending standards for subprime mortgages, loans offered to borrowers with weak credit histories.

The survey found that 40.5 percent of banks responding said they had tightened loan standards for so-called nontraditional mortgages. The Fed defines this category as adjustable-rate loans with multiple payment options, interest-only mortgages and products referred to as "Alt-A" loans that offer such features as limited verification of incomes.

The Fed survey found that even on prime loans, which offer traditional payment options such as 30-year mortgages to borrowers with strong credit histories, 14.3 percent of the banks responding said they had tightened their lending standards "somewhat."

The Fed's latest quarterly survey of bank loan officers found them responding to growing troubles in subprime mortgage lending. The Mortgage Bankers Association reported recently that the percentage of subprime loans that were 30 or more days past due climbed to 15.75 percent in the first three months of this year, a record high and up from 14.44 percent in the final three months of last years.

The crisis in subprime lending has sent shock waves through other parts of the financial system and caused big drops in the stock market in trading last week as investors worried about whether an expanding credit crunch could do serious harm to the overall economy.

The Fed joined with other central banks around the world to add extra money to the banking system in an effort to bolster confidence.

The crisis in subprime lending reflects an overall slump in the housing market following a boom period in which sales and home prices had both soared.

With sales now falling and prices stagnant, potential buyers are having trouble getting loans because of tighter lending standards, a development that many economists fear will make the housing slump even worse.

The Fed survey said that 38 percent of the banks responding had reported weaker demand for traditional mortgages, while 44 percent of the banks that offered subprime loans reported weaker demand for those loans.

The Fed last week kept a key interest rate unchanged while noting tighter credit conditions for some households and businesses.

[dallison7]

Having been in the finance business for thirty plus years, the comments I read on these sites concern me. There is very little understanding of what is happening out there. Our country enjoyed a robust economy for a number of years and, yes, the average citizen invested and took chances in hopes of improving their quality-of-life. The mis-steps, incompetence and deceptive practices of the current administration have severely damaged 'consumer confidence'. People stopped buying homes, prices were reduced and values deflated. The sub-prime market has not changed in over thirty years. People with 'less than perfect' credit would enter into an adjustable rate mortgage and refinance at the time of their first adjustment. This act is not possible now because their home's value is less than their mortgage balance. They have no choice but to give up their homes to foreclosure. Look for the thing to turn around after the elections in 2008.

[sjc_1]

This is a bit after the fact. Where were they before the fact? Why would they change the laws to make the regulations easier? The same reason the S&L laws were changed in the 80s, money and greed.

[afmca]

Sub-prime lending was just a gigantic criminal pyramid scheme to defraud average citizens. With loose lending standards money was easy to get. This inflated the price of the land, which in turn inflated the price of the house, which in turn inflated the amount of property taxes that would be owed to the government. This the land owner, builder, banker got rich and governments got their tax money to waste. The power folks were happy!

If money would have been lent responsibly then money would have been less available thus lowering the cost of the land, thus lowering the cost of the house, thus lowering the amount of property taxes paid. That is how the market is supposed to work. The land owner, builder, and banker would not be as rich. The government could not waste as much money. But the economy would be on a more solid base.

[cathaleen]

Once again, the banks will get bailed out. They should be made to help the people they lent the money to. They knew what they were doing. They've done this before and the govt bails them out for hundreds of millions and forgets about the poor slobs that have been duped by the banks. No they'll blame the people that lose their homes to foreclosures saying ''They don't pay their bills", etc. Our financial systems are corrupt.

[jetranger7]

On the msnbc web site theres a story about this woman whos a skin care specialist in debt 750,000 with 3 homes she was using as rental property, I mean come on, how does a skin care specialist qualify for those kinds of loans anyway,,she was hopeing to retire off her rental income, now shes losing all 3 homes to foreclosure, people thought they were going to get Rich off their properties, just average houses, get real,its absurd and stupid to even think that !!!!

[standlee5]

Would you ever believe that people would be able to borrow money large sums of money with no income, credit or collateral not to mention past bankruptcies.

[navyretired2]

"Posted by shanev137 at 10:58 PM : Aug 13, 2007"

Keep in mind, who owns the "Fed."

Answer: Five British bankers.

[shanev137]

No federal bail outs for the lenders or borrowers.

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You're not keeping up Standlee5.

The FED has recently been injecting billions into the credit markets to prop them up.

[itgranny]

There's going to be a revolt if the gov. keeps bailing out these crooks when people who can't pay their medical bills can't get out out of their financial problems.

[navyretired2]

"1st they loosened Lending Standards to create riches for the rich & cheat citizens out of thier homes & claimed it good for Americans "OwnerShip Society" Bush still promotes,,, Millions of Americans loose homes --
-- Then, they patch the problem by putting more money into circulation & further weaking the US Dollar & Tighten Lending Standards ???? With this administration,,, Seeing is believing.
Posted by j-whitman at 03:19 PM : Aug 13, 2007"

J, it's not just this administration, it's all of them. Our governmental system, when not supportive of the constitution, is directly destructive of the American way of life as we know it. For our government to work, it HAS to follow the constitution, without it, we have no base supportable structure.

It's not JUST (though he's done more than most) Bush, it's government in general. VERY few people even speak out in the halls of congress about it. I'd invite anybody to check out Ron Paul's congressional speech regarding the Fed. Can find it on YouTube fairly easily, it's also on the page that Coffeehead linked below.

It's definitely worth watching for all Americans.