How Can There Be a Credit Crisis?

[competentone]

I think I've been receiving more offers for credit than I ever recall receiving.

How does that make sense when we are supposed to be in the middle of a "credit crisis"?

Maybe it is like my wife said this afternoon when I showed her the latest offers to borrow money:

"It's only a credit crisis for those who aren't credit worthy."

[tabs]

Bear Sterns, Merrill Lynch, AIG, WAMU. LEHMAN............

Royal Bank Of Scotland. Wacovia...........

[DARISC]

An ex g/f sell houses for a developer, says buyers with a good FICO score and not in a lot of debt can get a loan no problem.

[SteveinTO]

A bank's assets are it's loans...to you...to business...for cars...for houses...for Pelican's revolving line of credit. When a significant percentage of those loans are in default, a bank has no funds to make more loans, hell sometimes they can't even make payroll. Would you loan money to a bank like that? (Suprise, the answer is yes).

At the bank I work for, with no sub-prime loans or securitized portfolio of same, there is no liquidity crisis. If you've got 10% down, allow us to verify income, do a real appraisal, you can borrow easily at market rates.

If you want a negative amortizing, interest only, 3% teaser rate for an illegal alien gardner making $300,000 per year, you now have a "liquidity crisis."

Using Wayne & Pelican as an example, there is much financing available for an owner occupied commercial real estate building.

But try financing something a little more speculative, raw land...investment property... a construction loan. Deals we would have done in a heartbeat three months ago suddenly are extreme risks vis a vis their ability to "cash flow" and make payments.

[anotherblack944]

Originally Posted by competentone

I think I've been receiving more offers for credit than I ever recall receiving.

How does that make sense when we are supposed to be in the middle of a "credit crisis"?

Take a closer look at the APR. I bet you will find them a LOT higher than they used to be and with strict terms so that they can more quickly default to the ASTRONOMICAL rate.

[onewhippedpuppy]

Originally Posted by competentone

"It's only a credit crisis for those who aren't credit worthy."

Bingo! And in our modern times, where it's a RIGHT for everyone to have a nice home, new car, and flat-screen TV, this is a CRISIS.

In reality, lending has simply swung back to more conservative practices, i.e. where it should have stayed all along.

[competentone]

Originally Posted by anotherblack944

Take a closer look at the APR. I bet you will find them a LOT higher than they used to be and with strict terms so that they can more quickly default to the ASTRONOMICAL rate.

The cost of everything has gone up (not surprising considering the Fed's monetary policy), why would it be considered a "crisis" because the cost of borrowing money has also gone up?

And I don't consider 0.0% for 9-12 months any higher rate than I've received previously. (I know, I know, the idea of the rate is to get me to borrow with the expectation that I won't pay it back within the introductory rate period and they'll make a good return lending to me later in the loan period.)

The point of my comment -- which most commenting seemed to understand -- is that this "crisis" is really just about people and businesses that have gotten themselves into bad financial positions (by borrowing too much) and are now not able to borrow any more.

I don't call that a "crisis," just sound business practices by the lenders.

[Rick V]

Originally Posted by onewhippedpuppy

Bingo! And in our modern times, where it's a RIGHT for everyone to have a nice home, new car, and flat-screen TV, this is a CRISIS.

In reality, lending has simply swung back to more conservative practices, i.e. where it should have stayed all along.

Truer words are rarley spoken. It has gotten to the point where people just don't look at the big picture, they don't plan, save, build. It has to be right now or not at all. I see it in my kids all the time.
I waited till I was 40 to buy my 911, I waited till my house was almost payed for, I owe nobody anything on credit. I do carry a balance but that is small and just to keep my credit open.

[legion]

I was at a friends baby shower this weekend (long story why I was there...)

Anyway, I got to talking to the baby's grandfather, who is in construction. He is having LOTS of trouble getting construction loans from his traditional sources. Fortunately for him, he is doing mostly bank branches these days. He's basically told the banks that they need to finance his construction if they want a new branch.

[daepp]

Our banker is also anxious to lend us money.

I checked w/ BofA on my personal HELOC - zero balance, 500K limit, also available.

[ramonesfreak]

i continue to receive 2.9% interest for life, blank checks from Chase in the mail on a weekly basis

[jyl]

JPM comments from call today
Mortgage lending has gone back to 80% LTV
In bubble/bust states (CA FL NV), won't go above 65% LTV
Only originating loans that are eligible for agencies

So, that's one example of credit contraction from a big money center bank.
I hear than smaller/community banks are not tightening down as hard - but seems likely to me that relatively small segment of the banking industry will be constrained by capital.

[masraum]

Yep, I'm still getting tons of credit card junk mail.

[the]

Originally Posted by jyl

Mortgage lending has gone back to 80% LTV

The horror! Imagine that, a lender requiring that a home buyer actually have some skin in the game. How unfair.

[jyl]

80% LTV is not a problem. 65% is. To buy a $500K house, have to bring $185K cash to the party?

[tabs]

AOUUUUGA..AOUUUUUUGA, AOUUUUGA....DIVE DIVE DIVE>.....If this goes down any faster I'm gona get the bends.....

This is all so fked up....

And just when I thought I was gona be safe, here we go down again, Just when I think I am out they have to drag me back in again...

[onewhippedpuppy]

Originally Posted by jyl

80% LTV is not a problem. 65% is. To buy a $500K house, have to bring $185K cash to the party?

In SoCal, where the market prices are sinking like the Titanic, do you blame them?

[tabs]

well anyway. Last week I had two spoons at auction in Maine...they did sell a Colt Walker Pistol for $920,000 and had $11.4M in sales....but they had a lot of NO SALES as well...in paticular a Luger collection, which was OVER ESTIMATED AND HAD TOO HIGH OF RESERVES along with orginality questions.

The first piece was a West German Korth Revolver....est 3500 to 5000K..hammer price 3500 + 15% for $4075 out de door...never fear I was quiet profitable on this one even after the vigourish they charge as sellers commission.

Second piece was a Colt Bisley Flattop TGT circa 1900 rare model with less than a 1000 made...my spoon was restored professionally...in similar orginal condition would go for 15K to 20K. estimate was 5K to 7K....NO SALE.....The sucker didn't even get to my reserve which protects me. OUCH that hurt.

Tuesday..I get a call from the auctioneer. I have an offer, I countered at my reserve and they accepted......I am at Break Even...

So all in all I will not quibble and will take the cash and run...

[jyl]

Originally Posted by onewhippedpuppy

In SoCal, where the market prices are sinking like the Titanic, do you blame them?

No, I don't "blame them" - everyone is doing what is rational for them. But clearly there is a major contraction in credit going on. Whether one approves of it or not, the near-term and even medium-term impact on the economy is going to be pretty clear.

[the]

Originally Posted by jyl

80% LTV is not a problem. 65% is. To buy a $500K house, have to bring $185K cash to the party?

Makes sense if you are the bank in a bubble area like most of Cal., b/c in a year, that "$500K house" is going to be a $400K house.