Credit Crisis Makes Loans of All Stripes Tougher to Come By
As the economy continues its poor performance, you may have had to cut back on meals, change to a cheaper brand of laundry soap, trade in your car for a train on your morning commute, or sacrificed on any one of a hundred small details that can help families keep ahead as food and gas prices go up.
Yet as the credit crisis in the United States deepens, you may find it more difficult than ever to plan long-term financially as well.
New reports across major news outlets demonstrate that access to credit is becoming more difficult than ever to achieve. As the AP reports, a Federal Reserve survey in July reported that 75 percent of banks had made their lending standards tighter, 15 percent higher than in the previous survey.
There's no doubt about it: banks are struggling to keep ahead of the risk involved in lending money, and enforcing tougher requirements for getting a loan is one important change where they can minimize risk. In their eyes, fewer loans means fewer bankruptcy cases.
The 50 banks who reported hold about 80 percent of residential mortgages held by commercial banks, meaning that their share of the mortgage market is overwhelming.
And yet, 32 of these banks still originated so-called "non-traditional" mortgages, meaning adjustable-rate mortgages.
Among these mortgages, even more have seen tighter standards: 85 percent of non-traditional mortgages are tougher to qualify for than was previously reported.
Subprime mortgages have fared even worse: of the 50 banks in the survey, only 7 still originated subprime loans, and 6 of these had tightened their lending standards for these loans. Only one bank that originated subprime mortgages still had the same lending standards in force.
However, getting a home mortgage loan is not the only financial action affected by the stricter standards. Eighty percent of banks tightened lending standards for home equity lines of credit, meaning that many other big-ticket purchases and even loans to pay for education and other necessities are more difficult to come by.
Perhaps the most sobering detail of the survey was access to revolving credit in the form of credit cards. Sixty-five percent of banks made lending policies for credit cards tougher, a difficult position considering that consumer spending comprises two-thirds of the U.S. economy.
Also, the Federal Reserve reported in August that June numbers indicated that consumer credit had increased by $14.33 billion, or a 6.8 percent increase, the fastest growth in that area in 7 months.