banks

Credit Market Makes Economists Nervous

Interest rates are low and home prices are down, but banks continue to be stingy with loans.

At the height of the housing boom, seven out of 10 mortgages were approved. At the end of 2008, only five out of 10 got the green light. During the boom years, homebuyers could qualify for the cheapest rates with a credit score of 660. Today, they need 740 or better.

“Banks are going to be in a defensive posture for several years. Most borrowers can’t meet their criteria,” says Christopher Whalen, managing director at research firm Institutional Risk Analytics.

Consumers cut back borrowing by $21.6 billion from June to July, the biggest drop since the Federal Reserve began keeping records in 1943. That made some analysts nervous.

The reduction in borrowing could slow the economic recovery, says David Olson, president of Access Mortgage Research & Consulting.

“If they cut back, it would be catastrophic,” Olson says. “We could have a second downturn.”

Source: The Associated Press, Stevenson Jacobs (09/17/2009)

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Elliott Robinson, JD – Associate Broker
Keller Williams Realty Metro Atlanta
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banks

Banks Plan to Keep Lending Tight

Banks tightened standards for all types of loans in the second quarter, the Federal Reserve reported Monday.

About 35 percent of senior loan officials said they tightened standards somewhat and none of the 51 responding banks said they loosened standards for prime mortgages. The rest said their standards for mortgages remained the same or were substantially stronger.

Banks also told the Fed that they expected to maintain strict lending standards until at least the second half of 2010.

“Most banks have woken up to the fact that there is a lot more risk in their loan books than they ever thought possible,” says Joel Conn, president of Lakeshore Capital LLC in Birmingham, Ala. That has caused many banks to reconsider their requirements for future lending, Conn says.

Source: Bloomberg, Craig Torres