[Music] A new survey from the Federal Reserve Found that lenders are getting stricter When it comes to Consumer loans the Rejection rate for credit applicants Increased to almost 22 percent in June That is the highest level since June of 2018. the rejection rate for auto loans Increased about 14 percent from just Over nine percent in February there is Also an increase in rejections for Mortgages and mortgage refinance Application Warren cornfield joins us now he's the Senior vice president for Moody's Investor service okay so what is behind This are they just doing us a favor So it's really quite straight Banks expect on unemployment rates to uh To rise they're going to tighten their Lending standards to go and reduce Possible future losses now let's go back A little bit 12 18 months ago U.S Consumers were in the best shape Financial shape they've been in 50 some Of the years if not ever we had excess Savings we had Unemployment uh rates had Fallen to less than uh less than four Percent and the best way in my view to Tell how are consumers are doing is are They paying their financial obligation At that point in time delinquencies on Cars Autos Residential Mortgages Throughout historic load so since then
We have obviously have had the last two Years elevated inflation that that has Increased rates why to slow the economy Therefore we have higher recession odds And Banks started tightening actually uh Underwriting standards credit standards About a year ago And does the turmoil that we've been Seeing in the banking World impact this I mean our banks themselves making this Call because of everything that's been Going on in that sector So remember it did start Um before Um with just the deteriorating Macroeconomic prospects but absolutely The turmoil that we had back in March And uh April in the uh the banking Sector uh has had an impact what do Banks do they borrow money Mainly deposits what do they do with That money they lend that money out to Consumers as well as our businesses so Back in you know March and April a whole Variety of different things happened Deposits woke up and started demanding Higher higher rates Repositors were questioning should I Keep my money in bank X or should I move It into bank y deposits looking at Yields and money market funds and we're Transferring money from deposits into Money market funds and thanks with all This we're concerned with the stability
Of their deposits and reaction Banks Look to slow Their loan growth and the fastest way to Slow the loan growth is with tighter Standards and does the fed's tightening Regulation on banks also play a role Um absolutely so banks have been you Know increasing Um have been reducing share repurchases The last quarter so in anticipation of a Uptight or a regulation and you know With capital standards likely for the Largest banks over 100 billion dollars Or so uh likely increasing we will find Out uh in a day or so likely on on Thursday for the latest round banks are Looking to yes conserve you know you Know not have their balance sheets grow And yes that's also having an impact on Bank lending standards very quickly if You're rejected do you apply again do You go to another bank before I let you Go uh uh yes you uh you do there are There's a wide variety of different Lenders out there Banks as well as uh Non-banks and yes you do try again if at First you don't succeed all right Warren Cornfield thank you so much
