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Credit Crunch May Last Longer Than Thought
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Loan Officers Get Stricter
The root cause is a deflating U.S. housing bubble, which -- if history is any guide -- will be with us for at least a year and a half.
The October Federal Reserve Senior Loan Officer survey showed tightening conditions almost across the board, and notably for loans to "prime" home borrowers.
The survey has been around since 1966 and has proved to be highly predictive of future economic growth.
Released on Monday, the latest edition showed significant tightening in conditions in a number of areas.
More than 40 percent of domestic banks polled had tightened lending standards on prime mortgages -- mostly traditional fixed-rate loans made to borrowers with strong credit -- compared to 15 percent in the Fed's July survey.
Overall residential lending conditions are now tighter than at any time since 1991. Demand is weakening too, the banks said.
Take special note of the prime issue. These loans, made to borrower with good credit histories, have thus far been spared the worst of the crunch.
Interestingly, bonds issued by Fannie and Freddie have trailed those with issued by Ginnie Mae, which have an explicit U.S. government backing
Terms were tougher too for commercial and industrial borrowers, both large and small, according to the survey, and loans for commerical real estate are now harder to get than anytime since the early 1990s.
One-third of foreign-owned banks were tightening lending standards and three-fourths increasing price-related terms, making them even more cautious than their domestic rivals.
Federal Reserve Governor Frederic Mishkin said on Wednesday that there was evidence that small businesses were still enjoying access to credit, though he noted that real estate, which is often used as collateral for small business loans, was an important concern.
"You could look at all of this as ample justification for the 75 basis points the Fed has cut thus far. I look at it as good evidence for why, outside of the stock market, the effect of those cuts has been blunted," said Mishkin.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
