Lenders retreat as housing market plummets
The national housing market decline and resulting financial institution write-downs are beginning to hit home in the form of tighter credit, even for highly qualified borrowers with solid-gold credentials. As lenders clamp down on new borrowers and cap existing home equity credit lines in an effort to limit future exposure, everyone from car dealers to landscape architects feels the effects.
MAKING SENSE OF THE STORY:
Credit fuels economic growth by providing the means for people to purchase goods and services. By 2004, Americans had borrowed more than $180 billion based on their home equity, plowing record amounts of cash back into the economy with the resulting purchases.
In particular, lenders are cutting back on loans and lines of credit backed by real estate assets or raising interest rates and qualifying criteria. By year-end 2007, home equity lending plunged to only $26 billion, according to the Federal Reserve.
According to economists, other factors also are at play. Slowing wage growth, rising prices for staples, falling stock portfolios and the cost of servicing existing debt all are causing consumers to rethink their spending habits