Are Banks Still Lending?

[kingstu]

Originally Posted by GermanBJJ

Your FED numbers don't take into account the Shadow Banking system, only the regulated commercial banking system.

This is a good post and legitimate point BUT my understanding is that this system does not originate a great deal of loans (especially home loans). At the peak, commercial banks originated about 50% of corporate loans with hedge funds, private equity funds, GE commercial finance, etc. originating the remaining 50%. This market has dried up…which is why those of us in commercial banking have been so busy.

The “shadow banking” system does do the bulk of derivatives and purchases quite a bit of distressed debt (and non distressed debt) on the secondary market but not a great deal of originations. I will check the Gold Sheets (an lending industry trade publication) and see if I can get some numbers.

[LavrentiBeria]

Originally Posted by GermanBJJ

I

The "Shadow Banking" system, up until very recently, was responsible for 70% of all lending in the United States. Now the Shadow Banking system is in total meltdown. And that banking system is much larger than, and more leveraged than, the commercial banks.

What the hell is the Shadow Banking system? Never heard of it before

[LavrentiBeria]

Originally Posted by MODE ROGUE

I
A – Appraisals. Back in the “old days” (i.e. – a year ago) an underwriter would have an appraisal go through a formal appraisal ‘review’ if it looked suspicious. Today, virtually every appraisal is submitted for appraisal review and lenders are frequently coming back with LOWER values than those submitted by certified appraisers. This is commonplace and, clearly, a showstopper. !!

Maybe it is the right thing to do. The bank's appraisals are probably more in line with reality. In the Bay Area for a very modest house the asking price is still 500K+, It's good to hear that the banks are not putting up with this bullshit anymore. House prices need to go down by 50%.

[Oblivian]

Originally Posted by NMMMAFan

I find those real estate numbers hard to believe. I know last summer the company I work for was getting 1100-1200 orders a month and just last month we only got in about 300 so real estate is definitely much slower lately than in the past.

Title Company?
We ran our title plant for the past year and mortgages are down only 25% from the year before. The Genesis Program/FHA gave a huge rise to mortgages in this town in September. The program ended October 1st and we had about 6 closings on September 30th.
It's hard to pinpoint if it's banks denying the lending or people afraid to buy/commit to a mortgage with the economy the way it is. With some of the orders that come through, I don't see how many people are getting denied. We still have major banks (Wells Fargo, National City, First Merchants, etc.) over extending credit to people who shouldn't qualify for 75% of the principal or even qualify for a mortgage at all.

[consortium11]

No mention of LIBOR at all in this thread?

The LIBOR rates are beyond high, which helps no-one. Of any single indicator, LIBOR is probably the best for seeing quite where the market is at the moment.

[define "is"]

I don't know about the large conglomerate and multi-national banks, but I just secured a loan for expansion of my buisness this past week through a local hometown type bank. We've been negotiating and working the terms out for 2 months, but I thought surely that the current climate would make them want to put it off. However, it didn't seem to put them off at all and everything is going through as planned.

The bailout is worrisome to me. I fear that a lot of that money borrowed from the taxpayer will end up being loaned back to the taxpayer, at interest of course, that it was forcibly taken from. From the looks of the state of things on Wall Street, my confidence in the bailout working is quite low, and the continued promises of Henry Paulson that it's just one step in a series of steps makes me even less confident. After all, I didn't see that first step getting us anywhere but backwards, thus far.

[Nietzsche13]

Great thread.

Its good to see Kingstu back on the throne.

This has been very helpful. Contributions by Mode Rogue and GermanBJJ shed light on a dark situation.

I think one of the main reasons why the financial system is locked up is that the bottom of the housing market has not been determined. Essentially, the value of a property is the collateral for these loans and if there is a threat that it will continue to go down, there is a great deal of risk regardless of the qualifications of the buyer/borrower.

What the banks are doing is raising the down payment requirement. The days of no money down are gone forever. You will need 20% for now on plus great credit. In commercial lending, the borrower will be responsible for guaranteeing new loans with additional collateral on top of the property itself.

The problem is that savings is being wiped out and cash liquidity is hard to find right now. There aren't enough borrowers who 1. want to buy something now and 2. have the ability to secure the funds even if they want to. Its the exact opposite of where things were beetween 2003-2005.

To make matters even worse, there is a glut of supply on the market. Too much inventory, not enough buyers: prices are going down down down. Its the only way to sell right now. Problem: The sellers cannot afford to pay money at the closing table to sell their properties. Who would do that? Answer: Give the keys to the bank and go into foreclosure.

Downward spiral. The plan is in a tailspin, and if you know a pilot ask them what you do. They will tell you that your instincts will guide you to do exactly the wrong move to pull out of it. This is what our government and the federal reserve is doing right now. They are trying to put out a fire with gasoline. The same gasoline they used to start the fire in 2002-2004.

The government is spending and borrowing money it doesn't have. The Federal Reserve is increasing the supply of money. Maybe they should ease up on the throttle and stop interfering with the natural functioning of the markets. We need to believe in capitalism again.

[define "is"]

I'd have to say that I agree Nietzsche. Perhaps if the government stopped artificially inflating the markets, things would right themselves without incurring such a tremendous debt to go with it. After all, stocks that were attractive when the DOW was functioning around 14,000 will be SUPER attractive should it level off at 7,000. At least that's how my simplistic mind works, lol.

[Nietzsche13]

There is no going back from where we are now. The housing crisis is the anchor of this economy.

[define "is"]

Yes, it is now. However, should they have stayed out of it in the first place and let the markets do their jobs, we'd be better off in the long run. Then again, this is a "need it fast, need it now" society that can't stomach even a year of economic downturn without someone "doing something". Even if that "something" puts you in worse shape than you were before, all that matters was that somebody was doing something and it made us all feeeeeeel better.