February 2, 2010
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News: Feds Report Optimism in Credit Arena
During most of 2009, banks and credit card companies responded to the recession by tightening up lending standards. Many cardholders found their credit limits slashed and new applicants found it more difficult to be approved. However, now that the economy has begun its recovery and Americans have curbed credit card spending, lenders have opened up the credit window. According to a recent report by the Federal Reserve, banks and card companies have lightened up on lending credit during the 4th quarter 2009. Despite easing up on credit card standards, the Federal report indicated that Americans have not been as willing to trust lenders as credit demand remains diminished.
Home mortgage loans have not received the same treatment as credit cards. Banks weren't as willing to ease up on stringent standards for mortgages. Consumer installment loans fared the best as the category realized the first increase in nearly three years. Although overall credit card companies were easing up on lending standards, their interest rates and fees increased significantly in both the small business category as well as in the consumer group. Delinquencies and defaults continue to be of concern for lenders. The majority of respondents indicated that they expect commercial and industrial loan delinquencies by smaller organizations to remain a problem. They do, however, see larger organization delinquencies to decline. Banks also see their prime mortgage loans and home equity loan delinquencies and defaults to continue to worsen during 2010.
Despite the fact that overall lenders have eased up on credit card standards, there were a small number of lenders that continued to kept credit at a minimum and refused credit to subprime and high risk borrowers. There were also a small number of lenders that felt the quality of consumer and real estate loans would not deteriorate and expected consumer loans to improve. Lenders were more optimistic for 2010 than they have been over the past year. Most described their outlook as "balanced." The Federal Reserve survey respondents included 55 domestic banks and 23 US representatives of foreign financial institutions.