A few weeks ago, you were reminded through this very posting that, not only had avid savers gotten kicked in the teeth from the current monetary policy’s ridiculously low rates, but so do borrowers with less than pristine credit. As we move forward, sorry to say, it’s rinse and repeat for at least the next 24 months – minimum.
If you’re trying to refinance your home and your credit score is closer to the combined weight of the left side of the Ram’s offensive line than to an acceptable 700-plus, then your options are limited. Many really good people have encountered really bad situations because of circumstances related to an economy that has been functioning like a plague and taking folks down in its wake. Seriously, folks’ chances of borrowing money are getting more remote by the minute. It’s the Credit Union and, well, who else?????
Why so little lending on the horizon? Well, the belief is that regulation, risk-averse examiners, and low rates don’t allow for a financial institution to do much for the non-prime borrower other than say “no.” This is the world we are in and keeping rates low isn’t solving the problem. Add to those with a watchful eye, i.e. bank stockholders who are looking for the greatest return with a manageable risk, and you have brought lending money to the mid-600 credit score crowd and below to a screeching halt. It’s the Credit Union and, well, who else?????
Financial institutions must be rewarded for taking risk, and low rates don’t do it. What if I told you that many in the banking world (not credit unions) can earn more profits by trading sophisticated financial derivatives and speculating in currency markets than helping the average consumer? Yes, it is true.
Harvesting seed corn is hard work rife with risk. Any risk that raises eyebrows among the visiting examiner is not going to find its way onto most financial institutions’ balance sheets. They just don’t take kindly to the prospects of loan loss showing up in the loan portfolio. A financial institution willing to reach below the proverbial crème on top is, well, under great scrutiny. Believe me, I know!
Look, I’m not going anywhere with this beyond bringing an understanding as to why the monetary policy may not be working as well as it could. I’m just trying to show the reality of a rate and regulatory environment that, unintended, adjusts many consumers who are in dire need out of the picture.
Nobody needs a refinance of their loan to lower payments and increase household cash flows more than the guy who lost his job and is picking up a few odd jobs here and there to make ends meet. His credit has suffered and his house value has dropped, but he (as the borrower) is as solid today in paying for his house as he ever was. But, when the rate for blemished credit is only 1.5% more than perfect credit (due to regulation), and the current mortgage rate is somewhere in the 3.6% range, most places won’t take the chance. See how rates and regulations spoil the party?
The bank finds alternative investments with greater yield. That leaves SLCCU to give it the ol’ college try. Give us a call. But, seriously, even SLCCU feels the impact of rates and regulations.