I constantly hear that even though interest rates may be at records lows, banks just aren’t lending. How true is this? Can someone provide some data to support?
mp3bu Wrote: ------------------------------------------------------- > I constantly hear that even though interest rates > may be at records lows, banks just aren’t lending. > How true is this? Can someone provide some data > to support? My understanding is that this is true. I plan to hopefully buy a place within the next year (hopefully around this winter) and have been researching the markets and process for about 6 months now. Everything I’ve read suggests that banks have gotten seriously reacquainted with the idea of risk and are much less likely to offer riskier prospects attractive loans - or even a loan at all in some cases. I know my credit is darn good and I plan on putting 20% down on a modest place (modest by NYC standards, I suppose…) that I would be able to afford if I lost my job, but if you’re stretching on a few metrics, be prepared to have to look around or pay more than you’d expect. http://www.chicagotribune.com/classified/realestate/sc-cons-0728-umberger-lending-20110729,0,6769651.column http://www.bloomberg.com/news/2011-08-04/u-s-30-year-mortgage-rate-declines-to-eight-month-low-of-4-39-on-economy.html Those are just two articles, but I’ve probably read a dozen or two that suggest that even though interest rates are low, the standards for lending have gone up quite a bit.
This paper is two years old but it should answer your questions: http://www.newyorkfed.org/research/staff_reports/sr380.pdf
I work for a top 50 US commercial bank by assets. Commercial loans finally have ticked up this year, but not much. It is more of an issue of qualified customers wanting loans. We are a conservative bank (largest bank to not take TARP funds) and our lending standards are more or less the same as before the crisis. The problem is quality customers who survived the crisis have no need for new debt right. The have cash and unused facilities and sales have only started to increase again. No need for new term loans. Banks are not withholding credit from customers, customers don’t need credit.
The borrower’s catch 22 - when you need to borrow money no one will lend it to you. People only want to lend to those who do not need it.
Banks are scared to loan because of the way loan assets are “risk-adjusted” when they’re on the balance sheet. Given Bernanke’s promise to keep short rates low, banks essentially are sure they will get the funding for very cheap at close to zero. Now if you’re a banker, you can do the following 1) loan it out to a decent guy who needs a mortgage at 5% for 30 years, but can only leverage 8x or 2) Buy a crap load of 10~30 yr Fannie/Freddie/Other agencies at 3%, but can leverage up to 20x Most banks chose to base the majority of their earnings assets on choice number 2, so consumers got screwed.
Just talked to a small cap manager who said all the banks they talk to are willing to lend, but most of their longtime customers don’t want to borrow at this point. Who knows how true that actually is (I tend to side more with kevin0118 in that banks would rather buy agencies), but that is what the smaller banks are saying.
here is an article that states that biggest challenging facing small businesses is a lack of sales and not financing. this also seemed to be the case across the portfolio of lower mid market companies at the prior PE fund i was with. http://online.wsj.com/article/SB10001424053111903885604576488054002109720.html?KEYWORDS=huntington
from http://ftalphaville.ft.com/blog/2011/08/12/652166/the-feds-secret-qe-equivalent/ : Why on earth would the Fed be choosing to soak up excess reserves at a time when the panic in the markets has reached highs not seen since 2008, and at a time when most of the market is calling for more liquidity and quantitative easing? Well, we would argue it’s because the Fed believs the financial system may have crashed through a critically important juncture. Actually perhaps a rabbit hole or a looking glass are more accurate. QE is no longer the cure. It has now become a poison. Which would explain why the Fed did not announce more QE at the last FOMC meeting, despite rampant calls for the opposite. It’s now very possible that the majority of the FOMC voting committee believes more QE could plunge the system into a desperate capital preservation frenzy, resulting in nothing else than self-imposed and voluntary capital destruction.
There should be a special program that offers 45 year mortgages for foreclosure properties & REO’s.
mp3bu Wrote: ------------------------------------------------------- > There should be a special program that offers 45 > year mortgages for foreclosure properties & REO’s. Fannie and Freddie REO’s have special financing available (not 45 years though)
Banks are willing to lend, but are still sketch (and rightly so) about lending to borrowers without the proper credit qualifications. Very credit worthy borrowers are averse to increasing leverage until they have more visibility (real or perceived) into the economy’s future. Given what we’ve gone through over the past few years, I tend to think it is probably a good thing.
Dwight Wrote: ------------------------------------------------------- > The borrower’s catch 22 - when you need to borrow > money no one will lend it to you. People only > want to lend to those who do not need it. Sad bad true. On a personal note, I did take out a car loan last year.