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Tightening of credit strikes nerve among consumers
By Dave Carpenter and Anne D'Innocenzio
Associated Press
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When Deb Freitag applied for a credit card so she could replace her roof, her leaky refrigerator and her old dishwasher, she was offered a $1,000 line of credit, not the $5,000 she needed.

When Mark Ryan finally scraped together more than enough to buy a home, he found that the mortgage a bank promised him earlier in the year was no longer available.

In a land where TV blares no-money-down pitches and everything from homes to furniture to college education is bought with borrowed money, the crisis on Wall Street is causing the credit market to seize up. On Main Street, this means fewer loans and smaller loans at higher rates — when they are available at all.

No one is quite sure how bad it will get, especially with the fate of the proposed $700 billion government bailout unknown. But people's inability to borrow has potentially dire effects, since consumer spending accounts for two-thirds of U.S. economic activity.

"If not fixed fairly soon, we may find that individuals and smaller businesses have much higher costs for borrowing — or in the worst case are unable to borrow at all," said David Stowell, finance professor at Northwestern University's Kellogg School of Management.

Freitag, a 43-year-old freelance writer in Cincinnati, was surprised when she tried to get a credit card from home improvement chain Lowe's Cos. this month. She got the skimpy $1,000 credit line bumped up to $2,000 after she complained, but even that wasn't enough.

Freitag calculated that her purchases would add up to almost $9,000, including the $6,000 for her roof, which was damaged in a wind storm this month. Now she will have to take out a consumer loan, which has bad consequences: Merely searching for the loan could hurt her credit rating, and she will have to start paying it back right away.

"These are needs," said Freitag, whose husband recently lost his job in corporate video production. "I am not going out and buying a designer kitchen."

There was little improvement to be found Friday in the credit markets, where corporate borrowers go for loans, an indication that consumers may continue find it difficult to borrow money.

The overnight London Interbank Offered Rate — LIBOR — fell to 2.31 percent from 2.56 percent Thursday, a decline that may make it easier for banks to obtain very short-term loans. But the LIBOR tied to longer terms dipped only negligibly suggesting banks were less willing to loan each other money for longer periods of time.

More than half of adjustable-rate mortgages are tied to LIBOR.

Ryan, 37, a social worker in New York City, can finally afford a home in one of the most expensive housing markets. But he can't get a mortgage.

Swiftly pre-approved by his bank for a loan last February, he went back this month after finding the apartment he wanted. But he was told he had to fill out a 17-page application to get re-approved — even though he had since added $50,000 to his bank account. While he waited for approval that ultimately never came, the apartment was sold out from under him.

"As a first-time homebuyer, in a way conditions couldn't get any better," he said. "If you can get your mortgage, rates are going down to the point where average people can afford them. But with the banks so paranoid, it's just tough getting one."

Homebuyers are not the only ones hard-pressed to get a loan. Calvin Parker, 39, a mechanic, was shopping for car parts in Harrisburg, Pa., to keep his 1997 Dodge Caravan going until he can meet the daunting terms for a new car.

"They want too much down," he said. "And the interest rates are too high. I believe I wouldn't be able to get a loan without paying $1,500 to $2,000 down."

Oona Rokyta felt the credit squeeze in her education loans. The 27-year-old publicist consolidated her four student loans — one for each year of college — in late August. She paid an average of 9 percent on them but wanted them redone as a single loan, in part to benefit her parents by removing them as co-signers.

The intention was good but the math worked out against her: Wells Fargo & Co. offered her an 11.75 percent interest rate and wanted the new loan paid back within seven years rather than the standard 15. Those changes boosted her monthly payment to $502 a month, from $301.

"I feel like I've been punished for maintaining good credit," she said.

Some mortgage brokers say there is still no problem for qualified borrowers.

And Ron Kelly, manager of the appliance and electronics department at a Sears in Wausau, Wis., said it was business as usual at his store: "It hasn't affected people applying for credit cards that I have seen. We haven't changed anything."

Shelton Head, a 60-year-old resident of Glendale, Ariz., pulled into a Phoenix strip mall Friday destined for a coin shop with a blue velvet box full of 1942, 1943 and 1945 silver dollars.

Unemployed, he said he has tried several times in recent months to get a loan but was rejected every time for not having sufficient income. Now he needed money for gas and groceries.

He left the coin shop 15 minutes later with $65.

Take a look
Deb Freitag looks at roofing materials at a Cincinnati roofing store Friday. Freitag was surprised by the extent of the credit chaos when she tried to get a credit card from home improvement chain Lowe's Cos. Inc. this month. She got the skimpy $1,000 credit line bumped up to $2,000 after she complained, but even that wasn't enough. (AP Photo/Tom Uhlman)
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Reader comments on this story - 13 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

clarkbar wrote on Oct 1, 2008 12:11 AM:

" Everyone's comments so far are right on the money, except excuseme's. I guess they were saying their comment tongue in cheek? "

History Alum wrote on Sep 29, 2008 11:07 AM:

" My question is... Why was Ms. Frietag in need of a loan to repair storm damage to her roof? Does she not have home insurance? That IS a covered damage on all home policies. "

pinko commie wrote on Sep 29, 2008 7:02 AM:

" A credit crunch is the best thing that can happen to this country. It's unfortunate what it will do to the economy but people need to get over their dependence on credit. "

pseudo-intellectual wrote on Sep 28, 2008 10:11 PM:

" We may have been a week or two away from credit cards not working at all, according to some reports. Talk about a national panic... This is why the bailout was an absolute necessity. We may hate the very idea, and all the politicians and bureaucrats, but we probably could not live without the plastic. Let's just hope the bailout works. There are no guarantees in this world. "

The other Dave wrote on Sep 28, 2008 8:35 PM:

" I guess saving money so that you can purchase something with cash is not an option? "

dalmanites wrote on Sep 28, 2008 6:51 PM:

" Tabtime, good leadership isn't going to come from McCain-Palin. Check how Palin ran her small village of 6000 people into $22 million dollars in debt. When she took office, the village had no debt at all. Sounds like good management to me, huh? Palin ran up debt that her village won't be able to pay. She doesn't have what it takes to deal with financial issues and her actions look very much like what went on in this article. "

excuseme wrote on Sep 28, 2008 6:35 PM:

" George Bush will fix all of this before he leaves office. I'm not worried at all. "

IluvBMI wrote on Sep 28, 2008 5:58 PM:

" This article is a joke right? Unemployed people can't get a loan. A guy who says he can afford a home in an expensive neighborhood but can't get a loan...guess what YOU CAN'T AFFORD IT!!!! The the freelance writer...whatever that means....can't get a $9,000 credit card...no duh!! These are the very people that have brought this country down.

Go to school. Get a good job. Only pay for stuff you can actually pay off in a reasonable time. Lord, I sound just like my father. Oh, I forgot, having a father around isn't a requirement any longer........ "

beowulf wrote on Sep 28, 2008 5:57 PM:

" Google the video "Money As Debt" by Paul Grignon. Very informative. "

archie bunker wrote on Sep 28, 2008 5:42 PM:

" personally I would rather have a consumer loan for needed repairs. The interest rate is lower and you can see the payoff date. If your a not able to payoff your credit card every month then your headed for trouble, minimum payment does not hack it. No Way Jose! "

mds1 wrote on Sep 28, 2008 5:08 PM:

" People have been living way above their means for years, and now it's time to pay the piper. Some feel they have to have every new gadget that comes out; it's just not necessary. It's called living within your means people. Many feel they need a new car every couple of years; they don't. They think they need to buy a new wardrobe every season, they think they have to have the latest computer, cell phone, or television. Their kids have to have everything too; it's not necessary and teaches them nothing about financial responsibility. Live a few years with the same items, pay off your credit cards, and keep only one card to use once in awhile to maintain your credit rating. Or, try living with no credit cards once in awhile. I can understand financing a house, car, or education; anything is else is living above your means. Try buying used items to stay within your budget. Believe it or not you can get a lot of good used merchandise without breaking the household budget. People just want to keep up with the Jone's. Establish an emergency savings account for only much needed items, such as a roof. "

tatbtime wrote on Sep 28, 2008 4:27 PM:

" . . . . . and I believe it will be getting much worse. America's politicians during the time they have been lining their own pockets, has let America go down the tubes. I love my country, but we need some good leadership-it seems we always have to choose between the best of the worst at election. If you don't have money, you'll never make it to the ballot. I AM going to vote McCain/Palin, I feel much safer than with Obama's empty promises and nothing to back them up. God Bless America, we sure need HIM too. "

Rivers wrote on Sep 28, 2008 3:41 PM:

" I think I now see the problem. Ms. Freitag is getting a new credit card to fix her roof (which will hurt her rating more if she ever closes it), Mr. Parker sees something unusual about putting 5-10% down on a new car and Ms. Rokyta goes ahead with an optional consolidation package that will cost her more in both the short and long run when she could have waited or simply kept the status quo.

WHEN DID IT BECOME THE NORM TO ACCOMODATE PEOPLE WHO MAKE BAD CHOICES? "
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