New Face of Credit
April 8, 2008
It should come as no surprise that banks and other lenders are quickly changing their loan requirements as home sales and home prices plunge and delinquencies and defaults increase. It should also come as no surprise that problems in the mortgage market are spilling into other financial markets as customers struggle to keep up with loan payments on their other consumer loans, such as automobile and credit card payments.
Les Berman, owner of Beverly Hills-based EB Financial and a director of the California Association of Mortgage Brokers recently said: “The market is reinventing itself daily; I did my first loan in 1971 and have never seen anything like this.”
He is not alone in his assessment.
Many financial experts believe a lot of the current issues came about due to lax lending requirements a few years ago and that the lenders must now make severe changes in those requirements in order to stay afloat. Some of the changes include increasing the credit scores consumers need to get a loan as well as offering smaller loans or requiring higher down payments for home loans.
The Federal Reserve has implemented a plan to provide some $200 billion to the lending sector which may help consumers to get the loans that they need. This injection of cash into the financial services market is considered a major move by the Fed in the hopes of curtailing future problems.
Of the many loan problems facing the markets, home mortgages have been among the worst-performing loans in recent months. In excess of 16 percent of sub prime mortgages were considered delinquent at the end of the third quarter. This is according to the latest data available from the Mortgage Bankers Association. Auto and credit card delinquencies are increasing as well.