"Mortgage Brokers vs. Bankers"

c/o MSN Real Estate 12-01-07

It's harder than ever to get loans

Residential mortgages were more difficult to get over the past three months than at any time in the 17-year history of the Federal Reserve's survey of banks. Standards for other types of loans tightened too, while demand fell.

By Rex Nutting, MarketWatch

Major banks made it much tougher for all types of customers to get loans over the past three months, according to the Federal Reserve's quarterly survey of bank lending officers.

This summer's credit squeeze prompted an unprecedented tightening in lending standards at major banks. As credit standards toughened, demand for loans also fell, the Fed reported Nov. 5, providing some fresh details on the fallout from the credit crunch.

Residential mortgages were harder to get than at any time in the 17-year history of the Fed's survey of banks' senior loan officers, the Fed said. The survey covers 52 domestic banks and 22 foreign banks, which together account for a majority of bank lending in the country.

Credit standards tightened for borrowers with the best credit, with 41% of banks requiring prime borrowers to jump over a higher bar before receiving mortgages. That's the biggest increase in tightening standards ever recorded. In the July survey, just 15% of banks reported higher standards for prime borrowers.

Even more banks were clamping down on borrowers trying to get nontraditional or subprime loans. For nontraditional loans (often called alt-A), 60% of banks raised their standards, and 55% of the banks that offer subprime loans raised the bar for such mortgages. The vast majority of banks don't offer subprime loans.

Despite the bankruptcy of dozens of lenders outside the banking system, about half the banks reported weaker demand for residential mortgage loans.

Banks also tightened standards for consumer loans. Credit standards for consumer loans other than credit cards tightened at the fastest rate in more than 12 years. Standards for credit cards were largely unchanged, but standards for other types of loans were increased by 28% of the banks.

For jumbo prime loans, which are given to borrowers with good credit who want mortgages above the conforming limit of $417,000, about 55% reported fewer originations, and about 50% increased their lending standards.

The credit crunch extended far beyond subprime, the survey revealed, hitting commercial real-estate loans and commercial and industrial loans, as well as lines of credit to back up commercial paper.

For commercial real-estate loans, 50% of banks tightened their credit standards, the biggest increase since the early 1990s. About 35% of banks reported lower demand for commercial real-estate loans.

For commercial and industrial loans, about 19% of banks tightened standards for large customers and 10% for small customers -- the biggest increases during this business cycle. Almost all the banks pointed to a weaker economic outlook as the basis for tightening standards, while few said they were doing so because of concerns about their own capital reserves or balance sheets.

About half the banks tightened their standards for credit lines to back up asset-backed commercial paper, the market that was hit hardest by the credit squeeze. Outstanding volumes of asset-backed paper have plunged by more than 25% since the summer. 

Lisa Balmes PC

Chris Balmes Properties

www.chrisbalmesproperties.com