Tue, September 09, 2008
Massachusetts Banks Tighten Lending
Last Friday's Boston Business Journal reported that banks in Massachusetts have cut back significantly in making both commercial and consumer loans. Also, according to a Federal Reserve Bank of Boston survey, since the beginning of the year, banks have been tightening their approval standards for all kinds of loans.
The September 5-11 BBJ story includes data from the FDIC showing that total net loans for Massachusetts’ 148 state-chartered banks dropped to $70.2 billion in the second quarter of 2008, a 23% decline from Q2 2007. Commercial and industrial lending dropped more than 50%, from $9.9 billion to $4.6 billion.
The Federal Reserve survey results not only indicated that banks are tightening their loan approval standards, it also showed that demand for commercial and household loans has weakened since January 2008.
The article does disclose some bright spots in the banking landscape for community banks that managed to stay clear of subprime loans. Banks that loaned money the old-fashioned way – making judgments about whether borrowers were credit-worthy and then holding those loans in their own their portfolios – now find that they are in better shape to make new loans than banks that were dependent on selling their mortgage originations in the secondary market to buyers like Fannie Mae and Freddie Mac. Even so, Massachusetts residential mortgage loans at state banks are down significantly over the course of a year, declining from $40.8 billion to $29.9 billion.
Loans to individuals dropped even more sharply, from $7.9 billion to $2.3 billion. The smallest declines were in commercial and construction/land development loans, which together dropped from $17.9 billion to $16.6 billion.
This doesn’t present the whole picture for lending in Massachusetts, because it only includes state-chartered banks. However, banks across the nation are becoming picky eaters when it comes to new loans, so this is probably a good indication of the general landscape. It does suggest that lending activity in the state is down generally. That doesn’t bode well in the near-term for housing or commercial activity. The recent federal bailout of Fannie Mae and Freddie Mac may help revive the mortgage market, but don’t expect a sudden or semi-miraculous recovery.
If you’re in the market for a mortgage and are a prime borrower, it sounds like you may have a better chance of doing business with smaller community banks that keep their mortgages in their own portfolios. As always, you should shop around for mortgage terms; bankrate.com is a good place to start.
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