Lending Market Update

Banks tightened the guidelines further on all sorts of lending, from home mortgages to credit cards and business loans, as the worst financial crisis in seven decades took a bigger toll on the economy. The Federal Reserve said Monday that its latest quarterly survey of bank lending practices found high numbers of banks reporting tighter credit standards across a broad range of loan products. Nearly 60% of banks responding to the survey said they had tightened lending standards on credit-card debt The unprecedented government moves are designed to bolster banks' balance sheets and break the jam in bank lending to get the credit system moving again -- and prevent the country sinking into a deep and prolonged recession. The Fed found 85% of the domestic banks responding to the survey reported that they had tightened their lending standards for a major type of business loans known as "commercial and industrial" loans, up from 60% in the June survey. Nearly all banks -- 95% -- reported tighter standards for the lines of credit they extend to large and medium-sized businesses. A large number of banks also reported they were tightening standards for both credit cards and other types of consumer loans. Besides the nearly 60% of banks tightening standards on credit-card debt, 65% said they had tightened lending standards for other types of consumer loans over the past three months. Amid the souring economy and rising job losses, defaults on credit-card debt have mounted, and banks already staggering from the mortgage and credit crises are losing billions more from unpaid credit-card bills. Credit-card lenders have been reducing customers' credit lines, raising interest rates or even closing accounts as they tighten the reins to reduce their risk. Continuing a pattern seen since the housing bubble burst, large majorities of banks reported tighter lending standards on prime mortgage loans, as well as nontraditional mortgage loans and subprime mortgages extended to borrowers with weak credit histories. The Fed survey found 70% of the banks responding said they had tightened lending standards further for prime mortgages. That was on top of 75% who were tightening such standards in the previous survey. The latest results for that area covered 52 institutions that account for about 78% of residential real estate loans as of June. Record defaults that began in the area of subprime mortgages have resulted in billions of dollars in losses for financial institutions and triggered the most severe financial crisis to hit this country.
How is all this going to play out affects, every one of us. The loss of credit availability will definitely affect our plans for success as well as our ability to reach our financial goals. Instead of kicking back and “enjoying the ride” we should get up and grab every opportunity while we still have it.