September 18, 2008 in Nation/World

Loan environment likely to stay inhospitable for consumers

By Peter Y. Hong Los Angeles Times
 

The crisis in the financial markets could make it even tougher to get loans to buy cars or houses – and the Federal Reserve didn’t make things any easier by declining to lower interest rates this week.

Experts say any hope of relief from the ongoing credit crunch – which had started to flicker as rates slipped down and homebuyers eased back into the market – has been dashed.

With the big financial houses in disarray, the market for home mortgages and other loans is shakier than ever. A rate cut by the Fed might have eased the problem by making it easier for businesses and individuals to get access to cash, but the decision to leave rates unchanged means that the mortgage market will not gain the extra flexibility that many had hoped for.

The lending environment, from home loans to credit card rates, “definitely won’t get better in the short term and may get a little worse,” said Greg McBride, senior financial analyst for Bankrate.com, a personal finance Web site.

It could prove difficult to extricate the economy from what might be a vicious circle: The housing crisis spurred the Wall Street crisis, but neither might be able to recover without the other.

“It’s one of those chicken-and-egg things,” said Edward Leamer, an economics forecaster at the University of California, Los Angeles.

The continued turmoil also means that consumers will continue to have difficulty affording – or financing – other large purchases, such as automobiles.

Whereas interest rates on cars loans, credit cards and some home mortgages are down from a year ago, lending standards have grown so tight that only people with the highest credit scores can obtain the loans. In some cases, even they have been turned down.

The difficulty faced by even qualified buyers could make already dismal auto sales even worse, said Bert Boeckmann, owner of Galpin Motors in Los Angeles.

“It doesn’t matter what the rate is if the customer can’t get the loan,” Boeckmann said.

Government and industry officials have blamed the Wall Street meltdown on the housing crash and say housing needs to stabilize to stop the bleeding in the financial markets and the overall economy.

“The housing correction is at the root of the challenges facing our markets and financial institutions,” Treasury Secretary Henry M. Paulson said Monday. Sliding house prices have led to wide-scale defaults on home loans, which has hammered financial companies heavily invested in mortgage-backed securities.


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