The daily media focus on the economy has brought the “banking crisis” to the forefront of everybody’s mind.  The failure of several large players in the banking system including 158 year old Lehman Brothers and the largest savings and loan bank Washington Mutual, has undoubtedly proven struggles in our banking system.  The congressional decision to pass the bailout plan will provide the much needed relief to the banks with a manageable recovery in sight.

Being in the midst of the daily information overload as a mortgage professional, I enjoy coming home with the family and turning on the evening news to see how the media will portray the day’s events.  Lately, I have been more than disappointed with the news of the banking system.  As banks fail or are aided by the government, the media provides the message that credit has completely “dried up” for American consumers.  The reality in the lending system now is that there are still loans available.

What we fail to hear is that Americans became used to a banking/lending system that was unconventional and much too lenient.  The performance of these banks was more important than education for those who lend and those who borrow.  This lending system has lead to an unusual amount of defaults in nearly all areas of banking.  The result has been a shift in lending practices.  There are still loans available for any need American consumers may have, but we have reverted to normal qualification standards.

We hear that bank loans have “dried up” or that there is no longer any loans available for consumers.  These claims are extremely vague and rarely come with any facts.  Please know that we are in a transition period to return to normal lending standards and there is still money available to borrow.  Below are some numbers from the Federal Reserve Board’s weekly report.  Note that consumer loans were up 9.5% from August 2007 to August 2008.

The need for education about credit, lending, and overall financial planning should accompany every credit decision.

If you have questions about how the transition period will affect you please comment or email to Conrad Venti.

U.S. Bank Loans (Billions of Dollars)

Federal Reserve Board, “Asset and Liabilities of Commercial Banks in the United States” (H.8)

Today the Federal government announced a rescue plan after a historic week in our financial markets.  Earlier in the week Lehman Brothers declared bankruptcy, Merrill Lynch was sold, and AIG was bailed out by the government.  Central banks from around the world poured hundreds of billions of dollars into the banking system in hopes to calm the storm.  Despite the surge of news and volatility in the financial markets this week, mortgage rates had little change.

The rescue plan announced today by the Treasury spoke of a broad plan.  A legislative proposal for lawmakers will be drafted by the Treasury this weekend.  The plan will likely include help from the Treasury to banks who have illiquid mortgage assets.  Buying the mortgage assets at a discount provides relief for the banks and will allow the government to provide help while forecasting a positive return.

Treasury Secretary Henry Paulson said, “I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.”

For more information about the Treasury’s announcement visit www.bloomberg.com.