Bankers Tighten Credit
November 8, 2007
It should come as no surprise that bankers have now tightened credit and lending policies. One major hit by this new crunch is the real estate market. It should be noted, however, that the belt tightening is being spread across a very broad plane, with commercial paper being included in the mix.
In a recent survey about 20 percent of banks reported that they had tightened standard industrial and commercial loans. Nearly 50 percent reported that they had also raised the standards for lending for backup lines of credit for asset-backed commercial paper programs.
There is also a trend toward reducing direct real estate loans. As well, the banks are now reducing or at least imposing higher standards for residential loans.
According to the Fed survey, nearly sixty percent of banks reported that they would be imposing new standards for non-traditional loans. They also reported that they would be imposing higher standards even for prime mortgages, making them harder to get by even those qualified to get them.
A few of the more notable changes include increasing loan rates and fees, higher down payment amounts, increased standards on levels of incomes and better asset documentation requirements.
The credit crunch goes beyond the home mortgage market as well with many banks (about 25 percent) planning to reduce consumer loans (other than credit cards) while at the same time raising interest rates and demanding higher credit scores for new loans