Credit Squeeze Gets Tighter And Tighter

Fed Says U.S. Banks Continue To Toughen Lending Standards For Home Mortgages

(AP)  The Federal Reserve reports that more U.S. banks are tightening lending standards on home mortgages, other types of consumer loans and business loans in response to a spreading credit crisis.

The Fed reported Monday that the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories.

The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15 percent saying those standards had been tightened considerably.

The current credit crisis began last year with rising defaults in the market for subprime loans, loans extended to borrowers with weak credit histories. Many of those subprime loans were packaged into mortgage-backed securities and sold to investors around the world.

Those investors, however, have pulled back from the subprime market and from other types of credit as losses have soared with the rising mortgage defaults.

As losses have mounted, more and more banks have grown reluctant to make loans and have been tightening up on standards. The Fed has been pumping billions of dollars into the banking system in an effort to encourage banks to keep lending to guard against the threat that the tighter credit could push the country into a deep recession.

The latest Fed survey found that banks tightened their lending standards on not just prime or traditional mortgages but also on nontraditional mortgages such as "Alt-A" loans given to people who supplied only limited income verification. The survey found that about 32 percent of the banks responding to the survey had tightened "considerably" their standards for nontraditional mortgages and another 43 percent had tightened standards in this category "somewhat."

The survey found that only nine banks are currently making loans in the suprime category and of that group, 78 percent had tightened lending standards either considerably or somewhat.

About 55 percent of banks reported imposing tougher standards on business loans, up from about 30 percent in the previous survey in January, the Fed reported.

"The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey," the Fed said.

The central bank last week announced new steps to aid with tight credit conditions by increasing the size of cash auctions to banks and allowing financial institutions to put up credit card debt, student loans and car loans as collateral for Fed loans.

The central bank also last week cut a key interest rate, the federal funds rate, by a quarter-point, in an effort to lower borrowing costs for consumer and business loans. However, the central bank signaled that this rate cut may be the last for a while as the Fed pauses to determine the impact of the seven rate cuts it has made since September.

[Razzl]

???? If almost 43% of banks have only tightened their standards "somewhat" for Alt-A stated income loans, the "liar loans" which mortgage brokers and criminals used to cause this mess, and yet 55% are tightening their standards for business loans, which haven''t even been a problem, then most banks are seriously misunderstanding where the problems came from...

[scottyusa]

Good call razzi. Greed will be the downfall of this country. It is starting right now. When people are hurting and big company CEOs are bathing in unimagineable amounts of money it won''t be long before there will be nothing but haves and have nots. There will be many more have nots than haves and the crime rate will be phenominal. The execs forgot all about the "trickle down" effect and feed the slaves little 2 and 3 percent raises while they rake in the big bucks and prices skyrocket. It is totally disgusting.

[slstransky]

scottyusa-I''m glad to see someone finally use the word greed. This is exactly what it is.

[randynason]

If the Feds had done something about this back when it was anticipated but ignored, then we wouldn''t be here, now, at this point. With this administration, it''s always the same story: too little, too late. The people haven''t exactly been vocal about all that directly affects them, either. It''s way past time to speak up and voice your concerns. Don''t wait for the Feds to come around. They never will, within this administration, especially. MacCain has no answers, nor does Clinton.

[shenboe]

I have no sympathy for the banks and mortgage companies which made bad loans, the investors who bought the bad loans, or about 90% of the people who borrowed when they should have known better. For the 10% who were too stupid to know that should not bought something they could not afford, I have a mild degree of sadness that they will be stupid forever. I also have no respect for the opportunistic politicians who twisted arms to encourage subprime lending to people who could not afford to buy.

[ioweign]

???? If almost 43% of banks have only tightened their standards "somewhat" for Alt-A stated income loans, the "liar loans" which mortgage brokers and criminals used to cause this mess, and yet 55% are tightening their standards for business loans, which haven''''t even been a problem, then most banks are seriously misunderstanding where the problems came from...

Posted by razzl at 05:11 PM : May 05, 2008

Or they do and that problem has not hit the fan ... yet !

[gce65]

I paid off my credit cards for years and kept a near zero balance and was a responsible customer.

Last year when my medical insurance company denied some expensive but legitimate claims, I had no other alternative than to pay from credit cards (and I later reported the incident to the state insurance board). Soon the banks raised my rates from about 12% and 14% to 25.99% and 31.49%.

With that kind of interest, I''ll never pay them off. I don''t know why, but it''s like the banks actually want me to go bankrupt. It makes no sense to me. Maybe they''re just conditioned to smell blood and attack, as if they might find some other asset to go after, like a house or something. But there aren''t any other assets.

So now I''m thinking maybe I should just max out my remaining cash advances and take a nice final vacation. I can''t think of a reason not to. Can anyone else?

[jerr11]

Looks like Bush''s enlightened policies are working!

Now he can relax and work on his second gig - Wedding planner for this Sunday''s wedding extravanza in Crawford.

I hear the church will be lined with 4071 hearses to greet the happy bride and her proud dad.

One hearse for each soldier killed by her dad''s war of greed.

[element51]

Here''s a real thought provoking idea. If the banks and lenders are going to strengthen their requirements to qualify for a loan, who will buy the millions of 250 thousand and up homes that are sitting empty? In order to qualify for amounts like that you would have to have an income in the six figure range. How many people can honestly say they are in that income range? If you''re making 45 to 75 thousand a year you simply cannot qualify for a loan. So, who''s gonna buy those houses? Prices of homes will have to drop quite a lot before there will be people who can HONESTLY quallify for a loan.

[ubrew12]

Right wingers don''t seem to get it.

If you execute someone who''s innocent: you are a murderer, and should be (by law) put to death.

[ubrew12]

Sorry, wrong thread.

[singingrick]

I paid off my credit cards for years and kept a near zero balance and was a responsible customer.

Last year when my medical insurance company denied some expensive but legitimate claims, I had no other alternative than to pay from credit cards (and I later reported the incident to the state insurance board). Soon the banks raised my rates from about 12% and 14% to 25.99% and 31.49%.

With that kind of interest, I''''ll never pay them off. I don''''t know why, but it''''s like the banks actually want me to go bankrupt. It makes no sense to me. Maybe they''''re just conditioned to smell blood and attack, as if they might find some other asset to go after, like a house or something. But there aren''''t any other assets.

So now I''''m thinking maybe I should just max out my remaining cash advances and take a nice final vacation. I can''''t think of a reason not to. Can anyone else?

Posted by gce65 at 08:10 PM : May 05, 200

[ov442]

The Fed has been pumping billions of dollars into the banking system in an effort to encourage banks to keep lending to guard against the threat that the tighter credit could push the country into a deep recession. ---- Guess that didnt work huh?

[ov442]

Why doesnt hte FED just start loaning those Billions to people who can no longer get loans but arent credit risks. Why give it to the banks who arent using it in our economy in any way to help the consumers and their ability to spend or obtain property?

[singingrick]

Republicons have let banks and credit card companies write laws that allow them to do what they want to the consumer.

Thanks Bushies!

[aljacobs2]

The number of persons that survive paycheck-to-paycheck is staggering. With the universal use of credit cards, on which a flood of interest perpetually flows, together with consumer borrowing for every impulse item the marketing industry can devise, it%u2019s no wonder, as reported, that nearly a third of American families could not meet their household expenses if regular family income were interrupted for sixty days.

It%u2019s my firm belief that the overabundance of credit in this nation is a most pernicious influence on our citizens. If you acknowledge nothing else, recognize that institutional lending is predatory%u2014by design. For a telling example, consider the practice of one the nation%u2019s largest banks, Bank of America. On the money you loan to them, by way of a passbook savings account, you currently receive interest of two-tenths of one percent annually. However, on loans to you through their Visa card, the rate is 23.74 percent. Can you think of a more descriptive word than predatory?
The lesson is basic: Avoid borrowing whenever possible. To prosper in this world, there is a fundamental concept you must embrace: Interest is not something you pay; it is something you collect.

Posted by Al Jacobs author of Nobody%u2019s Fool: A Skeptic%u2019s Guide to Prosperity. www.onthemoneytrail.com.

[ov442]

Posted by aljacobs2 --- All business that sells to consumers is Predatory. If they dont have you over a barrel and can force you to pay what they want, then they spend billions marketing to you in ways that psychologists and teams of pros have proven work to convince you to buy their *** including that you can afford it.
Again - zero oversight to protect US citizens from predatory commercial business. Feds failing to protect us from internal threats.

[forthepeopl1]

ALL THEY HAVE TO DO IS MAKE ALL MORTGAGES FROM 2000 TO 2007 ALL GET RE-FI AT A GOOD RATE LIKE 1 OR 2 POINTS OVER PRIME, THATS ALL AND IT WOULD STOP EVERYTHING ONCE AND FOR ALL.

TAKE WHAT THE MORTGAGE IS NOW MINUS 60 % PERCENT OFF AND RE-FI EVERYONE..THIS WOULD STOP IT ALL, AND STOP PUTTING GOOD AMERICANS ON THE STREET.

I JUST HAD MY REALTOR APPRAISE MY HOME I BOUGHT 6 YEARS AGO, PAYED 300,000 FOR IT NOTHING SPECIAL IN A SMALL TOWN IN MASS, NOW HE SAID ITS WORTH MAYBE 150,000 BUT REALLY THINKS IT WORTH 100,000..SO GUESS WHAT WHAT THE BANK WILL OWN IT FOR 300,000 BECAUSE THEY DONT WANT TO HELP IN MAKEING THE VALUE THE 100,000 TO 150,000, AND EVEN AT THAT RATE HE SAID IS BETTER THAN WHAT THEY ARE GETTING AT FORCLOSER SALES, THEY ARE GETTING 20 TO 30 CENTS ON THE DOLLAR. SO IT WOULD MAKE SENCE TO JUST RE-FI EVERYONE AT 40 PERCENT AND START OVER. THIS WOULD STOP EVERYTHING...

[e-mail]

[tracyforever]

To Save money, Get a high-quality and affordable pair of brand name shoes, then visit the Web site:
http://www.emailshoes.com

[forthepeopl1]

going "under water" as their loans exceed the please this is a simple thing to fix, why are you bending over for all of the wallstreet scum.
you have the right to do what this paulson/ben did for wallstreet,saying they had to to save america. so you can say the same thing, but this time you would be saveing america, and not wallstreet.
you must come out and stop the forcloseing of all these millions of homes, now,
ALL YOU HAVE TO DO IS MANDATE THAT ALL MORTGAGES THAT HAVE BEEN TAKEN OUT FROM 2000 TO 2007 BY ALL AMERICANS TO BE RE-FI A.S.A.P. NO EXCEPTIONS,


NO MATTER WHAT THE CREDIT IS, THEY WILL RE-FI EVERYONE AT JUST OVER PRIME, AND AT A RATE OF 40% OF WHAT IS OWED ON THE PROPERTY( PERSONAL HOMES ONLY)!!
WHY, BECAUSE MOST HOST ARE SELLING AT FORCLOSER FOR 20 TO 30 CENTS ON THE DOLLAR, SO AS TO WHAT PAULSON SAID TO BEARSTEARN 2 DOLLARS IS BETTER THAN NO DOLLARS SO TAKE THE DEAL..NOW REMEMBER ALL OF YOU, IF THIS COMPANY IN 6 MONTHS LOST 98% OF THEIR VALUE FROM 700 BILLION TO WHAT IS IT NOW. AND FOR SOMEONE TO COME IN AND BUY IT FOR NOTHING, WHAT IS THE REAL VALUE OF ALL THESE HOMES???NOBODY KNOWS, SO WHY NOT JUST START OVER??? AND STOP THE BLEEDING FOR ALL AMERICANS.

[e-mail]
DAVID A BELANGER
FOR COMMON SENSE THIS IS SO EASY TO FIX DONT MAKE IT HARDER THAN IT IS PEOPLE.


WHAT MORE BAILOUTS FOR WALLSTREET COMING.