From the Wall Street Journal:
Lenders to Home Buyers Tighten Further
Stricter Rules Hit Borrowers
With Good or Bad Credit;
Higher Costs for Businesses
By SUDEEP REDDY
November 6, 2007; Page A2
More banks are tightening lending standards for home buyers — even those with good credit — and raising borrowing costs for larger businesses, according to the Federal Reserve’s latest survey of banks’ senior loan officers.
The survey, conducted in the first half of October, involved 52 domestic banks and 20 foreign institutions. It was the Fed’s first poll of loan officers since the summer credit crisis. The Fed received the results by Oct. 18, ahead of last week’s policy meeting at which it cut its benchmark interest rate by a quarter percentage point to 4.5%.
Speaking in New York yesterday, Fed Governor Frederic Mishkin signaled little interest in additional interest-rate cuts. He said he hadn’t seen evidence of “serious spillovers” through the broader economy from the sharp downturn in the housing market and the tightening of credit.
He said the risks to the economy would have been greater if the Fed hadn’t made its latest rate cut.
“In circumstances when the risk of particularly bad economic outcomes is very real, a central bank may want to buy some insurance and, so to speak, ‘get ahead of the curve,’ ” he said.
The Fed survey showed lenders’ growing scrutiny of real-estate loans and increasing caution about other types of lending.
About 40% of banks said they tightened terms for prime mortgages in the prior three months for people with the best credit records. That was up from about 15% in the previous survey in July.
About 60% of banks said they tightened standards on home mortgages classified as “nontraditional,” up from 40% in the previous survey.
Five of the nine banks that originated subprime mortgages — for people with the weakest credit records — reported stricter terms. That was the same as in the July survey.
The Fed survey found that about a quarter of domestic banks tightened their standards for loans other than credit cards in the prior three months, up from about 10% in the July survey.
Interestingly enough, I am a member of USAA and they recently offered me a 100% LTV loan up to $417,000 at 6.5% (30 fixed). Despite my strong credit score and documented income, I was shocked at how seamless and willing they were to offer this product; they can even close in 2 weeks! I also think it’s a reflection of the types of lenders that will continue to offer such loans; credit unions and community banks that have and will continue to portfolio loans and not sell off on the secondary.