Tuesday, March 31, 2009

Is bank lending really increasing?

If you have adjusted a previous loan of $300k to a new loan of $250k - through these loan modification programs - I would imagine that would show up as "a new loan".

And if the example above is a large percentage of these "new loans" that are supposedly coming from the banks, then, in real terms, are they really new loans?

Instead, these "new loans" are like banks saying "Instead of you not giving us anything, we will lower the amount you owe, so you give us something."

So what looks like a $250k "new loan" is in reality a $50k giveaway by a bank in hopes that the home owner will continue to send some money to the bank instead of nothing.

Labeling these kind of modifications as new loans would be the equivalent of saying trading a more expensive car for a less expensive car shows that car sales are increasing.

Smoke and mirrors?

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