Lending Club Blog

Are New Lending Rules Hurting the Economy?

Everybody knows that the economic crisis came about, in large part, because loans were given that could not be paid back. Since then, both the government and individual lending agencies have developed stricter lending policies in order to prevent the same thing from happening again.

In theory, this is a good thing.  Stricter lending laws seem to lead directly to the giving out of fewer bad loans, which in turn will not be sold as investments and will not tank the economy when they’re not paid back.

The downside of stricter lending, though, is that having fewer bad loans means having fewer loans in general, and that means less consumer spending and fewer new jobs in important sectors such as the construction industry.

While many of these stricter lending policies have to do with loans given out to individuals and families hoping to purchase a new home, some of them also target construction companies.  These companies are often being asked to put down double the down payment they had before the financial crisis, plus a deposit equal to a year’s worth of interest on the loan.  With this kind of up-front investment, it’s no wonder construction still only proceeds slowly.

Since the construction industry is one of the prime places where new jobs will pop up, holding it back means holding back the entire economy. Some economists say that this is worth it to deter another crisis, but others aren’t so sure.

And the stricter lending policies are hitting individuals, too. Take the new FHA lending rules, for instance.  Not only are they making loans harder to get, but they’re hurting condo prices across the country. It’s now harder than ever for a condo complex to qualify for FHA buyers, and that means the pool of potential purchasers for these condos is lower. With demand down, condo owners have to sell for less or hold out and hope things get better.

With every positive move, it seems, there are also negative repercussions.

Have you been hit by the new lending rules? How has it hurt (or helped) your situation?

Image courtesy of SliceofNYC.

Wednesday, May 18th, 2011 at 3:22 am

Comments (2)

  1. David U:

    The lack of lending has crippled my work, the inability to obtain
    credit for a barn conversion has destroyed growth plans. It is
    unfair that due to the past crisis individual applications are
    overlooked

    May 26th, 2011 at 2:25 pm

  2. Ashley Morrison:

    Whilst I agree that stricter lending is a good idea and as a rusult
    bad lending has been wiped out. IMO this is only part of the story.
    Lenders are asking for much larger deposits on property mortgages
    sometimes up to 40% which is pricing large numbers of people out of
    the market. We are in the process of buying a new property and we
    are having to pay nearly over $200,000 just for the deposit. We are
    fortunate but most people don’t have the means to raise that type
    of capital.

    May 30th, 2011 at 6:14 am

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