No Sign of a Credit Crunch Outside of Real Estate

I keep reading about the credit crunch. Can't find it myself.

Oh, if you're a sub-prime person who wants a house with nothing down and no income verification, then credit is not available. But outside of real estate, I can't find a credit crunch. I've been talking to my many banker clients, and they all tell me they are happy making regular old commercial and industrial loans to businesses. Any company that still meets the standards banks were using two years ago will have no trouble getting a bank loan today.

On the consumer side, I don't see any troubles. There may be fewer people meeting the standards, and some credit card companies are tightening their standards, but the average person with a good FICO can still get credit. A good gauge of that is the car industry. Most cars are sold on credit, and almost all of that credit is securitized in much the same way that mortgages are packaged and resold to investors.

You'd think that the market for securitized loans would have dried up, but that's not the case. A good way to see that is the volume of car sales. There's certainly a slowdown, but not a collapse. And I think the slowdown is driven by consumer attitudes more than a change in credit availability.

Now for real estate. Sub-prime mortgages are hard to get, and jumbos are much more expensive than they used to be. Developers are having to put up more equity, but under the right conditions, they can still get credit.

My personal experience: I was asked to investigate the possibility of the Willamette Sailing Club, a great small sailboat oriented club in Portland, borrowing a million dollars to build a new clubhouse. I called three local banks, spoke to high-level officers, and found that all three were willing to do the deal. Sure, they wanted an appraisal of our land. They wanted to see financials and membership numbers. But credit is available. Cool. Just wait to you see what we look like next year.

Comments

[7c-ranch]

I don't doubt the anecdotal evidence of good borrowers getting credit. The probablem is always from the marginal consumer/small business.
I would refer you to the following paper presented at Brandeis in March:
Leveraged Losses: Lessons from the Mortgage Market Meltdown†
David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin
US Monetary Policy Forum Conference Draft

[westwest888]

My father got laid off because his boss' engineering company could not get accounts receivable financing. These problems extend to anyone who has collateral and needs cash. Collateral is often, but not always, real estate.

[bylo]

I'll bet MY yaght club could get credit, too, if all the members had $5M+ in the bank. But what about the guy that runs the car wash? Or the guy that runs a Radio Shack? Or the school teacher? Maybe if they're debt free... but don't count on it.

[pepster]

Totally agree with bylo. The author states that it's still easy to get credit. I have no doubt this is true for individuals and businesses who already have lots of assets (like the Willamette Sailing Club, I'm sure), but what about the rest of us who don't have the same amount of assets?

[Steven R.Smith]

Car dealers are often required to guarantee the loans that they write. Most will be a 90 day gurantee to the lender if the car goes delinquent and the bank can repo it before 90 days, they pay off the loan.

Those with stinky credit are unconditionally guaranteed. Try that model on the Housing Market and we might not have had such a problem.

Builders, like KB Homes as an example, partnered with lenders or set up their own lender, raising the prices and packing people into deals.

Liberal lending allowed people who did not qualify, buy bigger houses than they could afford. This was helped along with Appraisers who willfully inflated the prices and called it Market Value.

Now prices are in free fall, on their way back down to where the average household can actually afford them.

Most all are in denial about their role. What happened amounted to Racketeering.