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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (158834)	10/21/2008 3:58:46 PM
From: Les H	Read Replies (2) \| Respond to of 306849

Car dealers demanding $1,000 down payment Era of easy credit apparently over By ADAM GELLER - The Associated Press Adrian Clark, a St. Louis-area steamfitter, recently went 10 dealerships looking for a car to commute to a new job. But every one offered a variation: Without $1,000 for a down payment, no loan. “It’s just rough times right now,” Clark said. “Rough times.” For Clark, and for a nation of consumers heavily dependent on credit, there are growing signs those rough times could prove to be more than just a temporary problemand a stark, new reality has taken hold. Is America’s long era of easy credit over? Experts say that even when the current credit crunch eases, the nation might finally have maxed out its reliance on borrowed cash. Today’s crisis is a warning sign, they say, that consumers could be facing long-term adjustments in the way they finance their everyday lives. A prolonged period of tighter credit is ahead, experts say. U.S. consumers will find it much harder to get a credit card and to carry large balances. Late fees will rise and lines of credit will be reined in. After years of buying homes with interest-only loans, or loans that allowed people to borrow more than the value of the home, substantial payments and down payments will be required. Interest rates are also likely to rise. Lenders, far more wary of risk, have tightened the standards they use to judge potential borrowers. Regulators will be looking over their shoulders. The changes cap three decades in which U.S. consumers — along with businesses and government — have run up ever-increasing debt. Americans became accustomed to financing purchases large and small with plentiful credit cards, easily approved loans for cars and the latest conveniences, and by siphoning the equity in their homes. Lenders did far more than just make credit plentiful. They aggressively marketed it as a necessity, a way for smart consumers to leverage themselves into a better lifestyle. The financial meltdown has made clear the role an increasingly global economy played in facilitating U.S. consumers’ borrowing, with banks packaging and selling debt to investors, providing cash to people who once would have been considered too risky to get a loan. The expansion of credit has, in many ways, been a good thing. It has allowed many more people to buy homes. At a time when household incomes have stagnated, borrowing has made it possible for many people to afford purchases and cover short-term expenses they might otherwise have had to delay or abandon. But all that borrowing came at a heavy cost. The portion of disposable income that U.S. families devote to debt hit an all-time high in the second half of last year, topping 14 percent, figures from the Federal Reserve show. When other fixed obligations — like car lease payments and homeowner’s insurance — are added in, about one of every five household dollars is now claimed by bills. The credit card industry lobbied heavily in 2005 to tighten bankruptcy laws to make it more difficult for consumers to seek court protection and shed responsibility for paying off debt. But in a sign of just how much households have become dependent on borrowing, the average amount of credit card debt discharged in Chapter 7 bankruptcy filings has tripled — to $61,000 per person — from what it was before the law was passed. Americans, borrowing to cover ordinary living expenses, have all but abandoned saving. The new era of tighter credit will largely be a mandate, as consumers are forced to adjust to tougher rules and tighter limits. But consumers have also begun showing signs of a change in mind-set, putting off purchases, buying less expensive substitutes, going out to eat less, and rethinking their propensity to do so on credit. Consumer borrowing fell for the first time in more than a decade in August, the Federal Reserve reported last week. The decline, at annual rate of 3.7 percent, reflected a sharp drop in the category of borrowing including auto loans and a smaller decline in the category including credit cards. thestate.com