Banks Profit But Still Not Lending Money?
Ok, what is the deal? Banks are announcing great earnings yet the average Joe (or Joanne) can’t seem to get a loan let alone Fire Your Boss.
Here is the deal…
For starters, make no mistake; banks did take a big hit during this whole economic downturn. People missed house payments, stopped paying credit cards, and even lost homes back to the bank.
All those people that lost equity in homes and turned them over to the bank equaled real “lending” dollars for the banks gone.
The only positive side was the economic downturn gave banks an environment to dump marginal products and loans they probably should not have had to begin with.
This is where the “profitable” part comes in…
Now, hopefully, banks are stronger and have better loans on the books. So where are the loans?
In a nutshell the loans are coming but banks want to see a couple things first.
For starters, the recent regulatory changes by the government.
Most of the changes are meant as consumer protection but the banks still need to sift through this. It will not only help consumers in the long run, but hopefully leave banks taking less risky deals and create a stronger financial foundation.
Secondly, we really are not “stable” yet.
There have been some signs of recovery but many people are still losing their homes and without jobs. Not the safest time for banks to start throwing money around.
In the end, the banks want the money on the street. It is how they continue to profit. But they also don’t want to make the same mistakes they made before – lending big dollars into a popping bubble.
In the interim, many people are turning to private lenders such as those that will “owner carry back” the property. This was big when home mortgages were around 12-14%. Rates are not that high now but they might as well be if no one is getting a loan anyway