Well, a year after the global freeze in the credit markets that caused massive government intervention (aka interference) interest rates continue to remain at historic lows.
That’s great for people with good credit. If not, it seems like you could be wasting your time. Credit has gotten to be so tight that if you are willing to be interrogated for several days, and can document your entire life story, (video and pictures help) along with signed letters from every institution that you have done business with, you might be considered for a loan. And from all we can see, it’s going to be around for a while.
Bank and financial institutions are on the defensive posturing stage. After many completely blew lending on the mortgage side, it has had a ripple effect in all other areas of lending from home purchase, to auto, to personal loans, and any other mode of credit issuance that was common in the past. Not now. No segment of borrowers has been spared. During the housing boom five years ago, 7 of 10 applications were approved. Today is 5 in 10. With credit card companies getting tighter with credit, consumer credit carddebt declined by $6.1 billion in July.
For perspective, big banks are not risk averse. That’s common sense, right? Rather, their reluctance to lend has to reflect the fact that they must conserve cash to absorb billions in losses that are still expected to occur from bad loans that were made before our financial meltdown last September of 08. FDIC-insured banks lost a total of $3.7 billion in the second quarter, dragged down by growing number of bad loans. They set aside nearly $67 billion in the second quarter in anticipation of future losses from all those wonderful decisions that they made for years leading up to the crash.
Oh, there are a lot of other reasons, such as the lack of ability to pool loans into securities, (ABS = auto back securities) for sale to investors, or securitization. Lehman brothers collapse pretty much dried up this market outlet but there are signs of opportunity that crop up from time to time. With consumers ratcheting back their borrowing and banks getting tougher with their lending criteria, rates will remain low for those who have good credit. If you can stand the pain, you will benefit from the gain.
What has been your experience? We would love to hear what you are seeing from your point of view.
Here’s to getting this economy back on track.