Get the Lowdown on Securing a Loan
Find out how the credit crunch affects your odds of getting a loan.
June 3, 2006 — -- The credit crunch has already taken a bite out of Wall Street, but now it's baring its ugly fangs at loans for college, homes and small businesses. "Good Morning America" financial contributor Mellody Hobson sheds some light on where tight credit is hitting home and what you can do about it.
Let's start with small business owners: Is it harder for them to borrow money now?
The same ills to hit the college lending market have struck entrepreneurs in need of business loans. A recent survey by the Federal Reserve reported that more than 50 percent of banks have tightened their lending standards. It is even tougher for aspiring or small business owners who historically have relied on their biggest asset — their home — as a means to secure a loan. As home prices have declined and lenders have become more skittish about the housing market, this source of collateral has become even tougher to rely on.
The good news — fewer people are thinking about starting up a small business, which means you may actually be better off if you are in need of financing. According to the Small Business Administration, the number of small business loans are down 19 percent from a year ago, so do not assume it's impossible to secure funding. In fact, now may actually be a good time to try and get your business off the ground because fewer people are competing for the loans.
What about homeowners? Are there any silver linings in the mortgage market for them?
While lending standards have become much more stringent, there is some good news to report. First, following the latest round of rate cuts from the Federal Reserve, there has been some downward movement in mortgage rates. Additionally, Fannie Mae is planning to introduce a program later this year that would allow "underwater" homeowners — those who owe more than their home is worth — to refinance up to 120 percent of the property value. Fannie Mae estimates that about 150,000 households would qualify for this refinancing program.
Also, it is important to keep in mind that interest rates are still hovering around historic lows. The rate on a 30-year-fixed mortgage is about 6 percent, as opposed to 10.5 percent 20 years ago. These low rates, coupled with declining home prices, are a real plus for homebuyers.
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