Submitted: March 30, 2010
According to an analysis by The Wall Street Journal,
U.S. banks posted a 7.5% decline in 2009 in total loans outstanding, the steepest percentage drop since 1942 (the data is based on information from the Federal Deposit Insurance Corp.). Consumer lending fell by 3.8% as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans.
Nationally, thousands of banks and credit unions are starting to lend again after a period of “just-say-no”. The contrast is evident in the numbers: the largest 10% of banks by asset size shrank their consumer lending by 4.7% last year, while many smaller banks and credit unions continued to lend. Consumer loans grew nearly 3% at financial institutions that fall in the bottom 50% of the industry in assets.
More than 90% of the decline in loans outstanding occurred at banking organizations with more than $100 billion in assets, according to the FDIC, which includes Bank of America (BAC
), J.P. Morgan Chase (JPM
) and Citigroup (C
). The analysis includes mortgages, credit cards and auto loans held in their portfolios and excludes products they sell off, such as government-backed mortgages.
“More than nine out of every 10 mortgages now being originated carry government backing, giving lenders few incentives to do anything unconventional. But if you have good credit and otherwise fit government standards, there are plenty of lenders happy to give you a loan”.
“The options are likely to be more limited for other borrowers, such as those whose loans are too big for government backing (generally, $417,000 to $729,750, depending where you live). Smaller lenders and credit unions often can be more flexible because they know their customers and local market better or may have a prior relationship with the borrower”
“Most borrowers now wind up with 30-year fixed-rate mortgages, but many lenders that hold loans on their books prefer to offer adjustable-rate loans to protect the bank against rising interest rates, which can eat into profits. Typically, the mortgage amortizes over 30 years, but carries a "balloon payment," which means the loan must be repaid or refinanced after three to five years. The bank typically will finance up to 75% of a home's value, with a 60% limit for larger properties”.
“Some lenders offer better terms to borrowers whose loans they consider low-risk. Certain banks will lend up to 95% of a home's value (instead of its standard 85%) if a borrower has a credit score above 700 and total debt doesn't exceed 25% of income, including the new loan. Payments must be deducted from an account at the bank”.
“Amid record credit-card delinquencies and tighter federal regulations of card-issuer practices, many companies have curtailed card offerings, raised rates and reduced credit limits. Credit unions often offer lower rates than big banks, although their rewards programs can be less generous”.
“Car loans are gearing up again, but borrowers should prepare to pay up unless their credit scores are pristine. Lenders typically want a down payment of at least 10% to 15% and a 60-month loan term, with tougher terms for subprime borrowers”.