But It's All About Credit, Right?

Real Estate Broker/Owner

How many times have we heard either politicians, talking heads, or CEOs say, "we need to get credit moving again"?

As I have written about before the accepted philosophy has been that once we fixed the banking system and gave the banks enough capital, or guaranteed enough of their loans, or when we removed the toxic assets (all at the cost of the tax payer of course), that the banks will start lending again, the economy will turn around, and as Clark Griswold said in Vacation, we'll all be whistlin' Zip-a-dee-do-dah out of our you know whats as we skipped to work each day.

Well, we have done all of that.  We have given the banks nearly $700 billion worth of TARP money.  We have guaranteed another approximately $500 billion of their loans.  And we are going to be on the hook for what could be another $1 trillion in toxic asset guarantees with the PPIP.

And yet despite all of this, I read today on CNBC a report put out by the AP that says, "A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday."

Specifically, according to the AP, "The Fed's new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February."  And, "nearly 60 percent of banks said they tightened standards on credit card loans over the last three months".

I'm not advocating for banks to loosen their standards, my point is that we need to stop this charade that the banks are going to fix the economy, it simply is not true. 

What this means is that regardless of how much money we give the banks, no matter how much the tax-payer pays for their indiscretions, credit will not return to "normal" until the housing market and economy get stability.  In other words, Washington's philosophy about a top-down approach to fixing the housing market and economy is a fraud.

And it is all the more reason why a real housing stimulus that provides incentives for Americans to invest in real estate is the most cost effective method to bringing price stability to the housing market.

Comments (6)

Wanda Phillips
Success Investment Realty - Altamonte Springs, FL

The investors helped create this problem - and now investors paying all cash are about the only ones who can buy.  Even well qualified owner occupants have difficulty.  Having to pay all cash is keeping the prices down.

May 04, 2009 12:04 PM
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Mark, yeah I heard the reports today. It's not Washington's philosophy that is a fraud; it's the whole system. And the problem is growing, not shrinking.

May 04, 2009 01:30 PM
Mark MacKenzie
Phoenix, AZ

Wanda:  It's not just investors that caused this housing and mortgage meltdown, it was a systemic problem that was rooted in faulty loan underwriting and originating.

John:  Agreed on all accounts.  The problem is indeed getting growing, I think the tax payers are in for a surprise when they figure out the extent of the PPIP.


May 04, 2009 03:26 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Mark - I assure you, guidelines are getting tighter and tighter and escrows are getting harder and harder to close.  After reading one of your more recent posts, it inspired me to write about a recent experience about just how much more difficult it's becoming to get loans approved.

The thing that pisses me off the most are the lenders that I'm having the most trouble with are the ones that received bailout money.  It's absolutely ridiculous the kinds of loans that they're denying.

May 04, 2009 04:27 PM
Mark MacKenzie
Phoenix, AZ


Thanks for the comment.  That is really interesting information and it doesn't surprise me one bit.

May 05, 2009 01:01 AM
Kelly Turbeville
Keller Williams - Lake Forest, CA
Turning Real Estate Dreams into Reality

The top down philosphy is crazy. Would be great, if we had people at the top that actually cared about more then their bottom line.  Yes it is business, but we all know the banking industry is not customer centered.

How about a bottom up philosphy that rewards responsibility for the people on main street.  But until the people start demanding change even when they feel they will not be listened too, this farce will continue.


May 10, 2009 07:05 AM