If you or your business think it’s harder to get a loan, you’re right. Still.
When will banks start lending again?
Wasn’t in October.
Doesn’t look like November.
Maybe 2010?
That would be a relief for any investor counting on 3% or better growth from the U.S. economy next year. The economy can’t start cooking if banks aren’t lending.
The Federal Reserve’s October survey of bank lending officers is a downer.
Lending officers said that they continued to tighten lending standards and terms over the last three months. Tighter lending standards mean that fewer borrowers qualify for loans. Tighter terms mean that loans cost more, continue for shorter time periods, require more collateral, etc.
Not a good way to get the economy humming again.
The best thing you can say about the survey results is that while banks are still tightening lending standards, they aren’t tightening them at the record pace of 2008. At the end of 2008 87% of bank lending officers said they had tightened lending standards in the last three months. In the most recent survey the figure was down to just 34%.
It’s not like prospective borrowers are beating down bank’s doors looking for loan money either. Demand for almost all types of loans continued to decline over the last three months. The only exception? Prime real estate mortgages. Apparently if you’re got the high credit score to qualify for the lowest mortgage interest rates, the current low rates are very, very enticing.
Still, on balance, if you’re looking for signs that the economic recovery promised by the growth in GDP in the third quarter of 2009 has turned into a sustainable recovery, you won’t find them in this survey yet.
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I can testify to Jim’s comment about prime mortgages. I have a good credit score that qualified me for low rates, and coupled with the tax credit, I found it impossible to resist the sub-5% 30-year fixed rates. It was an inconvenient time for me to buy a house, but it was literally a once-in-a-lifetime opportunity. People with a job and decent credit will find they can afford a LOT of house right now.
But here’s another side of that story: even with a credit score close to 800 and a high income, I can’t refinance my 1M home at the lower rates because of the valuation drop over the last two years. This is California. Where we once had lots of equity, now we have none (or negative). Banks here want 25-35% down to buy (or in current equity to refi).
I do understand those banks. They have to minimize risk, not to maximize it.
P.S. I am still trying to see that light at the end of the tunnel, which obviously blinds the stock market these days.
Sorry Jim, I know this isn’t the right place for this message, but I didn’t see an e-mail address to ask you a question — regarding MICC as a play on the wireless in Africa and Latin America. If you get this message, would you take a look at MICC and let us know what your thoughts are on this stock and this play. Many thanks. Big Fan for as long as I can remember.
Wasn’t it loose lending standards that caused this mess in the first place?
good point rptalk2me. and if people had paid down their mortage and bought a few less toys, negative equity would not be a problem.
I suppose that may be true as far as it goes, but with the gigantic valuation drops over the past couple years, you don’t have to have been an irresponsible jackass to have found yourself in a negative equity situation. Consider a person with a stable job who put 20% down on a house in California a few years ago, obtained an affordable monthly mortgage payment, and then spent the intervening time throwing as much money as they could into their 401k and IRAs rather than paying down their mortgage. Conventional wisdom would say they made all the most prudent and forward-looking choices with their personal finances, but they would still be far underwater on their mortgage with little available cash to improve the situation because so much of their money is locked up in retirement accounts. Their only crime in this case was bad timing.