Fed: Banks reluctant to lend
Banks have dialed up the lending requirements in the face of the nearly half-trillion dollars lost in the mortgage mess to-date. The Federal Reserve reported that banks and lending institutions have tightened credit standards across all loan-types as losses mount and liquidity remains a key issue.
This should be seen as good news of course. Common sense lending disappeared for a long time, and now it seems like we’re making our way back to some place of balance. Of course, we’re sure to over-correct in the process; but we’re certainly not there yet.
From Bloomberg:
Most “domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months,” the Fed said today in its quarterly Senior Loan Officer Survey.
Banks may be reluctant to lend against housing collateral that is falling in value. Home prices in 20 U.S. metropolitan areas dropped 15.8 percent in May, the biggest decline since record keeping began in 2001, according to the S&P Case-Shiller Home-Price Index.
The economy is also faltering. The unemployment rate has moved up 1 percentage point during the past 12 months to 5.7 percent, while delinquencies on home loans to borrowers with weak or limited credit histories rose to 18.8 percent in the first quarter from 13.8 percent a year earlier.
“Large majorities of domestic respondents reported having tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the previous three months,” the Fed said.
Of the 32 banks that originate non-traditional mortgage loans, about 85 percent reported tighter lending standards, up from 75 percent in the prior survey, the Fed said.
About 65 percent of domestic banks indicated they had tightened their lending standards on credit card loans over the previous three months, up “notably” from about 30 percent in the April survey, the Fed said.
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Fed: Banks reluctant to lend
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