Large banks just don’t get it – “stupid is as stupid does” is all that comes to mind regarding current commercial and industrial loan standards and mortgage loans for homeowners.
August 5, 2014 Wall Street Journal…. Mortgage Standards are Easing, Fed Finds……
The Federal Reserve’s quarterly survey of bank Sr. Loan Officers showed that nearly half of large banks and foreign institutions believe the standards for riskier syndicated loans to companies with non-investment- grade or junk, credit rating are easier than post- 2005 norm.
What does this really mean? Banks are making risky loans again and that’s how we got in trouble in the first place!
Banks said they had eased standards on commercial loans and industrial loans primarily because of more aggressive competition from other lenders, and amid growing competition between banks and a slow growth low interest-rate environment. Some have also said an improving economic outlook has contributed somewhat.
What does all of this mean for homeowners? Even with the easing of standards, and their willingness to make risky commercial and industrial loans, if banks can’t get the rate of return they are looking for they will hold back and not make mortgage loans with the excess money they’ve been required to put in their stockpiles! They are just more cautious about lending to households.
Top policymakers have raised concerns over the past year that the tight credit standards could hamper the housing recovery. While standards should have ratcheted up after the housing bubble, it has now become the case that any borrower without a pretty pristine credit rating finds it awfully hard to get a mortgage.
What does this mean? The very same banks that caused this trouble will not give loans to the people who lost their houses. Former homeowners who had short sale or foreclosure, the only blemish on their credit report, can’t get the banks to give them a loan. Instead, they keep them financially handcuffed for up to seven years. This is why the market has not rebounded as expected – banks won’t shorten the time span to two years. It would be that simple and cost the taxpayers nothing!
Also, if you want to spark home buying amongst the baby boomers and the millennials, quit talking about killing the tax advantages…..it breeds uncertainty.
Remember, history always repeats itself….the oil embargo in the 1970’s change the US driving pattern for the next 10 years and this last recession will change the spending habits of US consumers for the next 10 years. We must educate the public that home ownership is still the American dream and lenders need to get on board!