Here’s the rub. If you don’t have great credit, what’s it matter if rates are at record low levels? You ain’t getting one of those bad boys.
I’ve spoken (in this very blog) about society’s savers getting an “atomic wedgie” by the low rate environment we’ve witnessed over the past few years. God love them – they keep saving but, seriously speaking, the pain of low rates is going to last another few years – through 2015 is a good guess. The old joke about “money buried in a mayonnaise jar in the backyard” is pretty close to reality.
But, now add to the list of those who have not benefitted by the low rates: anybody who has had a hiccup or two on their credit report. Couple that with the prospect of questionable job stability in this high wire act called an economy. Pepper in the likelihood that your house value is somewhere north of 20% less than it was at the end of 2007. And guess what? You have a better shot at Chicago Cubs World Series tickets than you do at getting a loan. The Feds can keep lowering rates. But if you’ve got stink on your credit, it doesn’t matter. You’re not getting a loan from most bankers. Thank God SLCCU is not a bank!
So, by process of elimination, it appears as though the only people getting the benefit of the low rate environment are people who have stable jobs, great credit, equity in their home, and are willing to borrow. Relatively speaking, that’s a group that may rival the 1% that we got our britches all bundled about in recent times.
So the Federal Reserve’s monetary policy is to keep rates low to spur economic growth through business and consumer borrowing. That’s their plan. Unfortunately, low rates haven’t reached enough Americans to spur stronger growth. Businesses aren’t borrowing because of the continued uncertainty of the economy. A small business person isn’t going to go in debt when the likelihood of selling more widgets to a buying public whose “hand to their wallet” muscle has atrophied is a major wild card. Plus, many of these small business owners use their house as collateral to borrow. OOPS! There is no equity.
Now add to the businesses not borrowing those consumers whose credit score is less than 700 and can’t get a loan at low rates because of it, and you’ve got the equivalent of the economy running a marathon in cement boots. And forget about it if your credit score is somewhere in the 620 range. Sixty percent of lenders say that they are much less likely to serve this sector of the borrowing public. Truly, the prospect of you getting a loan is, well, return to the Chicago Cubs going to the World Series analogy of a few paragraphs earlier.
How’d this happen? Well, banks and credit unions “risk-price.” And when rates are too low and regulation is too expensive to make a buck, they shut out those borrowers who are expensive to serve and have a greater risk of going bad on their loan.
So, really low rates aren’t working because working stiffs like us don’t have access to them. Now what? Thank God for St. Louis Community Credit Union.