The new reality of tighter credit

With the Dow Industrials on a roller coaster, taking many stocks along for the ride, investors are increasingly turning to “safe” bonds and keeping their fingers crossed that the Federal Reserve will lower interest rates when it meets Sept. 15.

Fed Chairman Ben Bernanke”™s faced some tough decisions since Alan Greenspan retired as chief.  While the Fed has already lowered its rate for banks, many are hoping for a further cut in the prime rate to bolster Wall Street.

Home prices dropped nationwide for the 12th month in a row, breaking an all-time record. How low will they go?  For mid-Hudson homeowners, the increasing market of foreclosures, the decline of home prices and the growing glut of homes on the market have only caused concern about what”™s to come.

Home equity loans are also becoming more difficult to obtain, as lenders don”™t know exactly where the housing market will end up. The average rate on a home equity line of credit is hovering at 8.25 percent

Sen. Charles Schumer, D-New York, called on Bernanke to help New York ”“ and the nation ”“ in the face of the subprime borrowing morass impacting the economy. In a letter dated Aug. 29, Bernanke told Schumer: “It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance. Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms. They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example. One public agency with considerable experience in providing home financing for low- and moderate-income borrowers is the Federal Housing Administration (FHA). The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets.”

Bernanke suggested those seeing red flags contact their lenders immediately, rather than waiting to receive a foreclosure notice in the mail. The Federal Reserve Board is currently “undertaking a comprehensive review of the rules regarding loans subject to the Home Owner Equity Protection Act as well as some rules pertaining to mortgage-related disclosures under the Truth in Lending Act,” continued Bernanke in his letter to Schumer.

Consumers aren”™t the only ones hit by the subprime plunge. Commercial borrowers are feeling the pinch, too.

 

Matt Rudikoff, one of the principals involved with the Long Dock Beacon project at Dennings Point, says the investment group is almost done arranging financing for the new hotel and conference center proposed on the Scenic Hudson property. “We are getting the money together, but it”™s costing more,” said Rudikoff at the Poughkeepsie Chamber”™s centennial mixer in August. “Our credit is good, so we are not concerned about that, but the cost of borrowing has gone up and that”™s put a crimp in our time frame.”Â  Rudikoff and his partners are negotiating with Doral Arrowood to manage the new hotel-conference center planned as part of the Long Dock project.

Riverside Bank President and CEO David MacFarland says rates have gone up, but activity is still very strong. “We”™re in a good growth area. Two years ago, a commercial mortgage would have been approximately 6.5 percent; today, it”™s approximately 8.25 (percent); still within reason. It hasn”™t gone out of sight.”