If Tight Lending Threaten U.S. Recovery, What Can We Do

By
Mortgage and Lending with Canopy Mortgage, LLC NMLS 124492

Did you hear what U.S. Treasury Secretary Timothy Geithner had to say about lending practices today?

C-Span Timothy GeithnerIn an interview on National Public Radio, Geithner was quoted saying the following:

"Right now, the real risk we face is that banks are not lending enough and not going to provide the capital businesses need to grow for the economy to strengthen going forward."

"The risk is that the pendulum having been too soft and easy on the lending side, the risk is that banks over-correct or that supervisors over-correct and that's something we need to lean against because the strength of recovery will depend in part on credit being available to businesses."

It is interesting to hear him publicly admit how bank lending has gone from one extreme to the other. From the outside looking in, Geithner can clearly see how excessively tight lending practices from banks could be a real hurdle to the health of the economy.

What Geithner fails to recognize is that banks are more restrictive not of their own accord but because the government has wielded their will onto banks through legislation and government oversight.

If Tight Lending Threaten U.S. Recovery, What Can We Do?

 

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Rainmaker
3,219,213
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

James, great point, the government is trying to control the Lending Institutions, but does not understand that their control measures are partially the cause of more restrictive lending practice. I find it also interesting he limited Geitner's understanding of this is. BTW did you see that he has been trying to sell his house? It is a very funny video one of the comedians did a three minute+/- on it.

Dec 22, 2009 11:28 AM #1
Ambassador
1,369,437
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

If we have to err, I rather err on the side of being too stringent. Never a bad thing but I must say, having to go through refinancing this year was a challenge. But in the end, I'm glad they had the checks and balances they placed. In the end, people with solid credit should have nothing to worry about. People with on the fence credit, they should consider making the plunge into a 15 or 30 year commitment.

Dec 22, 2009 12:35 PM #2
Rainer
75,709
Joel Prince
The Principle Group, Inc - Hixson, TN
Hixson/Soddy Real Estate Broker

James -

I heard this interview as well.  Lenders have gone from an "anyone with a pulse" mentality to very tight purse strings.

Dec 22, 2009 02:10 PM #3
Rainer
70,920
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Endre - Unintended consequences is definitely not a strength of government oversight. Thanks for the heads up on the video. Was not aware of it and I could use a good laugh.

Loreena - Glad to hear that you were able to get through your refinance without any horror stories. That can not be said about others. Even with great credit, declining home values have been the primary culprit especially with the appraisal management companies and their blind compliance to HVCC.

Joel - Tight purse strings would be easy to deal with if we knew the rules. It's tough when the rules have been in constant flux as has been the par for 2009.

Dec 22, 2009 03:01 PM #4
Rainmaker
1,167,586
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Let's hope all the talk of leaning on the banks to lend more will take effect in 2010.  It is the only way we are going to get out of this mess.

Dec 23, 2009 05:46 AM #5
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Im always having to walk people through this when providing mortgage options (as Im sure you do as well). The big comment has been "I hear that lenders are not lending money". Obviously that is very incorrect, but they are tightening their belts... and they should.  Too many loose rules have caused many homeowners to lose their homes. They should never have been in those homes to begin with and/or should have understood more clearly what it takes to keep up with the payments.

That is not to say that this is ALL lender fault. Loan Officers/Brokers are to blame for setting them up. For those homeowners that lost their jobs... thats a different cause all together. Those homeowners didnt take on a mortgage payment knowing they would not have a job over the next few months/years.

As for the comment by Geithner, someone should step in to help out. Lenders went from one extreme to the next, as you have pointed out. We need a nice balance of following guidelines and qualifying buyers.

Dec 23, 2009 02:53 PM #6
Rainer
70,920
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Jane - In my honest opinion, I think the topics of banks and lending will take a back seat to health care and jobs. Not sure if the government will do anything above and beyond the political grand standing.

John - With all of the public money injected into banks and the historic low cost of funds for the banks themselves, you would think that banks would be more willing to lend. As-is, they have been forced to maintain higher cash reserves and consequently have been extremely tight on lending. Will it continue? For the immediate future most likely yes. Long term they will have to lend to earn greater yields for their investors. In the mean time, banks are cherry picking the best borrowers at their discretion...not what Fannie Mae and Freddie Mac dictate.

Dec 24, 2009 01:12 AM #7
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James K Barath, CMPS

FICO Pro, Certified Military Housing Specialist
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