Getting harder to borrow

From the Wall Street Journal:

Banks Toughen Terms on Loans
Both Consumers And Businesses Feel the Impact
By SUDEEP REDDY
May 6, 2008; Page A3

In a blow to an already wobbly U.S. economy, banks are imposing tougher lending terms for consumers and businesses across the board.

The Federal Reserve’s survey of banks’ senior loan officers, one of the most closely watched gauges of lending practices, found that the credit crunch is widening. The proportion of domestic banks tightening their standards was at or near historical highs for almost all loan categories, including credit cards and student loans.

The survey, conducted in April, showed that demand for loans weakened in most categories, though not as much as in the previous three months.

The lending pullback comes as the economy slows to a crawl. The banks’ hesitancy to lend could restrain consumer spending as well as investment by businesses that depend on borrowing.

About a third of the 56 domestic banks surveyed in April reported raising their standards for credit-card loans over the past three months, up from just 10% in January. Banks are being tougher on credit-score requirements and are reducing credit limits on card loans. In addition, 44% of banks, up from 30% in January, tightened standards for other consumer loans.

Banks continue to get more restrictive in their real-estate lending as the housing bust adds to their losses. About 70% of banks said they tightened standards for new home-equity lines of credit over the prior three months. Roughly half of the banks said they tightened terms on existing home-equity lines of credit over the past six months because of home prices falling below their appraised values. Most lenders also cited loan defaults and a change in borrowers’ financial circumstances for tightening terms.

More than 60% of banks tightened standards on prime mortgages, up from just over half in January and 15% a year ago. At least three out of four said they tightened standards for nontraditional and subprime mortgages in the past three months. For commercial-real-estate loans, about 80% of banks tightened their lending standards.

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