Loans Harder for Americans
Posted by BANKUS on September 24th 2017
Banks are getting more selective about which consumers they're approving for loans. 11.7% of banks tightened standards for auto loans in the first quarter, up from 3.3% and credit card issuers were toughened by 8.3% of banks. The criteria for loans excluding credit cards were tightened by 7.3% of banks. The results do not mean anything wrong with the economy says Matthew Mish, head of global credit strategy for UBS. He believes, with the economic recovery in its eighth year, banks are extending their reach to borrowers at low- and middle-income levels to raise revenue.
“You are lending increasingly to the type of person that has cash flow pressures...” Mish says.
Joe LaVorgna, Deutsche Bank’s chief economist, says banks are being more careful in regards credit cards due to the low interest rates that have affected profit margins. 18% of consumers surveyed by UBS in December were to default on a loan payment in the coming 12 months. The most affected as expected are the lower-income Americans. Two-thirds of households who earn under $40,000 is falling short and barely covering, expenses, and 36% of that group see their financial conditions worsened over the past six months.
"Although wages have been going up, the incomes of low to moderate-income workers are not matching up the costs such as of the health insurance for example."
Latest reports demonstrate expenditure in the economy which is a positive signal due to President Trump’s fiscal stimulus, but which is not affecting less wealthy Americans.
"Housing is been a growing problem too."
The amount of nonperforming mortgages is lower and has been going down. But Mish says non-bank lenders have been approving mortgages for risky borrowers that are backed by the Federal Housing Administration. A study by Trinity University economist David Macpherson concluded that in 29 states home value have risen quicker than rents since 2012. Such data mostly points to a housing bubble and a significant growth in delinquencies in three to four years.