US bailout largesse reaches companies, not consumers

Thirteen hundred miles from Wall Street, Alex Fairchild is still waiting for a little of the US government’s multitrillion-dollar bailouts and Federal Reserve largesse to trickle his way.

His above-average credit score and $20,000 down payment for a $195,000 condo overlooking Miami’s Biscayne Bay didn’t spare the software engineer from a mortgage application process that took so long a government tax credit he was counting on expired. After seven months under contract and appraisals from three underwriters, his developer went bankrupt and New York-based Vanguard Funding declined to provide a loan.

“The banks are just extra jittery,” said Fairchild, who has been renting the unit and is starting the process anew. Lenders have gone from “too lax” before the credit crisis to “entirely too strict,” he said. “There are people like me that could be helping to get this inventory moved.”

The consumer loan market, particularly housing, remains a challenge for borrowers. Total US consumer credit outstanding was $2.4 trillion in January, or 6.6 per cent below its July 2008 level, the Fed said in a March 7 report. Total housing debt has declined by $536 billion since 2008 to $10.1 trillion, Fed data show. The median price of an existing US home has dropped 13 per cent since June to $158,800, bringing its decline since July 2006 to 31 per cent, according to the Chicago-based National Association of Realtors. About 10.8 million homes were worth less than the debt owed on them in the third quarter, research firm CoreLogic said in report.

Junk market rally
By contrast, the least creditworthy corporations have been able to borrow record amounts at the cheapest rates ever. Junk- rated companies sold an unprecedented $287.6 billion in bonds in 2010 and are setting an even faster pace of issuance this year. Claire’s Stores Inc, the costume jewelry retailer that had debt that was almost 10 times its earnings last year, sold $450 million of bonds last month that Moody’s Investors Service gave its third-lowest rating.

The US economy grew at a 2.8 per cent annual rate in the fourth quarter, slower than previously calculated, and is forecast to expand 3.2 per cent this year, according to the median estimate of 66 economists in a Bloomberg survey.