Credit clampdown

In case you were still wondering if the credit crunch is real: A quarterly Federal Reserve survey of senior loan officers found that getting any type of mortgage became tougher during the third quarter.

The survey, conducted in October and released today, tallied up responses from 55 U.S. banks, the large majority of which reported they had tightened their lending standards.

Tightening by category: 70% for prime loans, 90% for nontraditional mortgages and 100% for subprime home loans at the four banks that said they were still writing mortgages for people with poor credit scores. (The nontraditional category includes such products as adjustable-rate mortgages with multiple payment options, interest-only loans, mortgages with limited income verification and loans on properties not occupied by the owners.)

Sinking housing prices took a toll on the availability of home equity lines of credity as well. About 75% of the banks reported having made it harder for borrowers to qualify for revolving HELOCs over the past three months.

About 85% of domestic banks also reported tightening lending standards for commercial real estate loans.

Of course, mortgages were only part of the picture -- nearly 60% of the responding banks told the Fed they had imposed tighter standards on credit card loans, and nearly 65% indicated they made other consumer loans harder to get over the past three months.

-- E. Scott Reckard

Comments

[Suzi]

Another reason why the prices of homes keep sinking lower and lower! If the rates the banks are getting are at around 1% why on earth are they charging the consuemrs over 6% to get a standard 30 year loan??? This is just a big load of crap! It seems to be in the the interest of the Banks to keep home prices going down. And looking at the trend it's due to go down another 15% this coming year..

sources: http://www.homepricetrend.com

[M. Rahyab]

I would like to begin by acknowledging your superior Los Angeles based blog postings. Among the blogosphere, I persistently check in with “L.A. Land” to gain a better understanding on the drastically changing Los Angeles real estate market. In your entry you mentioned the percentages of many types of credit clampdowns, “Tightening by category: 70% for prime loans, 90% for nontraditional mortgages and 100% for sub-prime home loans at the four banks that said they were still writing mortgages for people with poor credit scores.” Shockingly, these statistics are higher than I have expected. I would like to share a couple statements regarding the intense credit restrictions. First, given the current economic status, the strict lending process has caused a devastating decline in the housing market. Although few civilians are buying foreclosed homes, most citizens of California are struggling to keep jobs, good credit, and their homes. Many economists at the University of Southern California believe plunging home prices will cut economic growth in the U.S. more than the drop in stock prices this year. Definitely, this bold statement emphasizes the importance of the housing market, do you agree? Secondly, I feel the credit crunch will not benefit qualified home buyers. For example, some loan restrictions will deny potential home buyers if their debt-to-income ratio is higher than one third. Many qualified home buyers who have a 20% down payment and steady income are being denied a loan because of strict ratio regulations. Consequently, the approach will not help stabilize the economy. In contrast, many can argue this statement. This past week home sales in the west-state regions have risen. Simultaneously, home inventory has been declining. While fewer homes are being built, the attention can be focused on foreclosed homes. Thus, the decline in home building can become a rational approach towards the rise of the housing market. Unfortunately, I agree that this credit clampdown is real and factual. Will a strict lending process of loans and mortgages solve our financial crisis? Given we are in a financial crisis, what are the initial steps to turn this economy around?