Are banks still making loans? It depends on who’s talking.
Bankers and their trade groups appearing before skeptical members of the House Financial Services Committee this week insisted that banks are still making loans. Those that have received money from the $700 billion federal bailout plan are not using the money to compensate their executives, they claim.
Steve Bartlett, president of the Financial Services Roundtable, said, “As credit markets unfreeze, our members will continue to lend to qualified buyers.” Edward Yingling, president and CEO of the American Bankers Association, cited a survey showing that only 6 percent of small businesses had trouble borrowing money.
Meanwhile, Barry L. Zubrow, chief risk officer with JP Morgan Chase & Co, told the Senate Banking Committee that part of the $25 billion capital infusion it got from the Treasury Department will be used to “expand the flow of credit” and rewrite up to 400,000 mortgages.
Another theme hit upon by the bankers was that customers aren’t asking for as much money.
Perhaps, but consider some other reports. According to the American Banker, the home equity market has frozen up. Firms such as Real Estate Equity Exchange, which peddles equity releases that let homeowners receive cash from their house’s future appreciation, has stopped marketing its product. Another firm, EquityKey LLC also has stopped funding such deals. The Small Business Administration has seen a 50 percent cutback in loans.
One factor could be that while banks are still making loans, the process is suddenly more tedious. Jay Ralstin, head of the Mortgage Bankers Association of Tallahassee, says that home loan applicants must now present more detailed documentation than before, such as two months of bank statements, employment stubs and income tax reports. “If getting a mortgage loan had always had this requirement, much of today’s financial crisis could have been avoided,” he says.
