Banks Are Making Achieving The American Dream Tougher
Wednesday, August 13, 2008SUSIE GHARIB: State and Federal regulators may be closing in on a deal with a number of big banks over the issue of auction rate-securities. Reuters is reporting the banks could be forced to re-purchase those securities, which are now illiquid, at face value. Last week, New York's attorney general reached deals with Citigroup and UBS to buy back billions of dollars worth of the controversial investments.
PAUL KANGAS: Meanwhile, making an investment in a home is getting tougher. Thirty-year mortgage rates are inching toward 7 percent and banks have raised the income and asset bar for borrowers. In fact, lenders are uneasy across the board and as Darren Gersh reports, that's affecting all kinds of credit
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you want to take out a loan to buy an SUV, be prepared for your credit rating to be strip-searched. Banks are worried they'll be left holding the keys on a gas guzzler no one wants. Don't even think about a lease. You know the story on real estate loans. Even those credit card offers are drying up. Direct mail researcher Mintel says mailings for new cards are down 20 percent this year. Bankrate.com's Leslie McFadden says card companies are trying to reduce their risk.
LESLIE MCFADDEN, REPORTER, BANKRATE.COM: And that's why it's so important for every consumer to pay down your balances as much as possible right now.
GERSH: McFadden says consumers who don't get the message are finding banks cutting back their credit limits. And while it's not that common, in some cases, banks are going further, using a technique known as "chasing down the balance."
MCFADDEN: This is when they'll lower a person's credit limit to whatever their balance is or maybe just slightly below what their balance is. This causes them to be over limit and then they have to bring down their balance. And whenever they do that, they keep lowering the credit limit to whatever their new balance is, so that's called chasing the balance down.
GERSH: The industry argues underwriting standards haven't changed much on credit cards, though the American Bankers Association's James Chessen says credit card lenders are being more cautious.
JAMES CHESSEN, CHIEF ECONOMIST, AMERICAN BANKERS ASSOCIATION: And their big exposure of course is the ability of consumers to really ratchet up and use the entire balance that's available to them. And in a period where there is job losses, concerns about interruptions in income from a spouse or even not even having overtime, it's a concern that that could be used up very quickly.
GERSH: It's not just little guys who are getting the credit once-over; Chessen worries even big commercial borrowers are also getting squeezed, sometimes by regulators.
CHESSEN: And we've had some bankers tell us that they are prepared to make loans. They see good opportunities out there, good borrowers with good plans and the regulators are asking them why would they make a loan in this type of environment. So we're very concerned that it can be a regulatory-induced credit crunch.
GERSH: The comptroller of the currency, a key Federal regulator, tells NIGHTLY BUSINESS REPORT mistakes were made in past economic downturns. Regulators now say they won't take a cookie cutter approach to reviewing loans, but they also stress it's important for banks to identify problems early now that the economy has weakened. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
