Banks Tightening Credit
February 19, 2008
For months it has been suggested that banks and other lenders will begin to tighten their credit standards which would result in fewer loans being approved. It would appear that the suggestion has become a reality.
In a recent survey conducted by the Federal Reserve banks appear to be tightening their credit standards on a variety of loans. These loans include home mortgages, auto loans, and virtually every other type of loan as well. This tight credit is expected to continue as the economic forecast for 2008 remains dim.
According to the study which was conducted in Jan of 2008, some eighty percent of all domestic banks reported that they had tightened their credit standards on commercial real estate loans and the some fifty-five percent of foreign banks had tightened their guidelines and standards as well.
As getting credit became harder, the demand for credit fell. Nearly 45 percent of foreign and domestic banks stated they had seen a downfall in demand for commercial real estate credit during the first three months of the year.
The report stated: “A large number of domestic and foreign respondents pointed to a less favorable economic outlook and to a worsening of the conditions of, or the outlook for, commercial real estate in the markets where their banks operate as reasons for tightening terms on commercial real estate loans in 2007.