Fed Study Shows Banks Harder on Borrowing

Even though the $700 billion bailout program was initiated to help banks loosen their purse strings and lend more money, the Federal Reserve's quarterly survey shows that many banks made it harder for borrowers to get any kind of loan over the last three months of 2008.

In a survey released on Monday, the Fed found large numbers of institutions reported tighter credit standards across a wide range of loan types, amid the worst financial crisis to hit the nation since the Great Depression.

About 60 percent of institutions in the survey say they tightened lending standards on credit cards and other consumer loans, and nearly 80 percent of them say they tightened standards on commercial real estate loans, a little less than the 85 percent in the previous quarterly survey.

The Fed says the percentage of banks reporting tightening their lending policies on all major loan categories in the time surveyed stayed "very elevated." The survey polled 51 domestic banks and 23 U.S. branches of foreign banks.

Of those surveyed, about 45 percent raised the minimum-required credit scores on credit card accounts and other consumer loans. Domestic banks also reduced the size of existing credit lines for all types of businesses and consumers.

Senate's Version of Stimulus to Add Highway, Transit Projects

The push-pull between those who want more spending added to those in the Senate who want to clip out parts of the now $885 billion stimulus plan continues in Washington today, as a boost in highway and mass transit funding is introduced.

Democratic Senator Patty Murray wants to add $25 billion in infrastructure projects -- only one of many proposed changes to the stimulus bill that is being debated in the Senate.

The $885 billion Senate economic plan faces fights from both sides, as lawmakers focus on eliminating ideas and projects that won't bring immediate, targeted relief to the economy.

President Obama urged lawmakers to meet and work out the perceived modest differences and get the stimulus bill enacted swiftly, as further layoffs were announced across industry sectors on Monday.

The Republicans are backing a plan to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, now operated by the federal government, would purchase the mortgages once banks made the loans to homeowners.

Loans to credit-worthy borrowers on primary residences with a mortgage of up to $625,000 would be qualified, including those seeking to refinance their current loans.

Foreclosures, Short Sales Driving Real Estate Market

With foreclosures climbing, real estate values across the country have dropped and the number of foreclosed homes and homes being sold for less than what their owner paid for them dominate most real estate markets, according to a report from Zillow.com, a real estate research firm.

The number of homes that are "underwater" -- meaning their owners hold mortgages that are higher than what the home is now worth -- have soared. The report shows that nearly 20 percent of the home sales in 2008 were of bank-repossessed properties. Added to this was 11 percent of sales were "short sales" where homeowners owed more on the mortgage than the home was worth.

Topping the nation's list of most distressed housing markets was Madera, CA. It had the highest percentage of foreclosure sales at 54.6 percent of all sales were foreclosed homes, with an additional 3.4 percent being short sales. Close behind was Merced, CA, with 53.4 percent of sales being foreclosures and 4.8 percent short sales. Stockton, CA had 51. 1 percent foreclosure sales and 5.4 percent short sales.

Zillow analysts note that more value was wiped out in the fourth quarter of 2008 than was eliminated in all of 2007. Nearly $3.3 trillion in home equity was erased in 2008 with $1.4 trillion in the fourth quarter. More than $6 trillion in value has been lost since the market peaked in 2005.

In the United States, 17.6 percent of all homes are now underwater, along with 41.2 percent of all mortgages for homes bought in the past five years.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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