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Rumored credit crunch doesn't affect everyone

With all the talk about the credit crackdown rattling Wall Street, you might think it's become impossible to get a loan.

By Helen Huntley, Times Personal Finance Editor
Published August 12, 2007


With all the talk about the credit crackdown rattling Wall Street, you might think it's become impossible to get a loan.

Fortunately that's not the case for most would-be borrowers, whether they're home buyers or businesses.

"The effect on small businesses and middle market companies is pretty nominal to this point," said Steve Raney, president of Raymond James Bank in St. Petersburg. "There continues to be a lot of competition here in the Tampa Bay area. There are a lot of lenders and a lot of liquidity, so for the most part, business borrowers are going to be insulated."

The borrowers who are affected are private equity deal makers who were acquiring companies in leveraged buyouts at a breakneck pace. Investment banks that put up money for those deals were turning around and reselling the debt to investors at very favorable terms - for the borrowers. What changed is that investors want better terms and higher interest rates, which is killing deals or making them more costly.

Investment banks have been caught in the crossfire, having committed to lending about $300-billion for pending deals at terms that will no longer fly in the markets.

This is bad news for shareholders in companies that might be contenders for private equity buyouts. However, it's good news for shareholders in other companies that are in the business of making acquisitions and now have less competition.

Over the past two years, these private deal makers "have driven the price up of almost any business enterprise," said Jim Henderson, chief operating officer of Brown & Brown Inc., which regularly expands its insurance agency business through acquisitions. Now, he said, the deal makers are having difficulty borrowing, which benefits Brown & Brown.

The other area where we're seeing credit tighten is in the mortgage market. It primarily affects borrowers with credit problems and those seeking loans without full documentation. In addition, buyers who need jumbo loans more than $417,000 are paying higher rates and may have more trouble finding a lender. However, buyers with good credit who want standard loans have plenty of willing lenders.

All this means that we're not yet in a true credit crunch, and we may never get there. However, all homeowners have reason to be concerned about problems in the mortgage market, especially in states like Florida where subprime and adjustable rate loans fueled the run-up in real estate prices. Now they are contributing to the glut of houses on the market and falling prices.

"This isn't over," economist Mark Zandi of said in a conference call last week. He predicted housing prices won't bottom out before the end of next year.

Another $50-billion in adjustable rate mortgages will face their first interest rate reset in October, and nearly $1-trillion in mortgages will reset over the coming year.

That means the peak in mortgage defaults is still 18 to 24 months away, said Joshua Rosen, managing partner with Graham Fischer & Co. and another speaker on last week's conference call sponsored by the National Association for Business Economics.

Even though foreclosures aren't likely to ever be more than a small percentage of all mortgages, every house foreclosed is another home on a glutted market. And every would-be borrower with subprime credit turned down for a loan is one fewer buyer.

Helen Huntley can be reached at or (727) 893-8230. Go to her MoneyTalk blog ( to read more about investments and personal finance.

[Last modified August 10, 2007, 17:25:09]

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