Mortgages Up, But Other Lending Falls

Mortgage lending increased, but all other forms of credit declined in February among banks that were the major recipients of government funds under the Troubled Asset Relief Program (TARP), the U.S. Treasury reported Wednesday.

Overall lending among the 21 banks declined 2 percent in February, despite a 35 percent increase in residential mortgage loans, driven primarily by demand for refinancing by consumers looking to take advantage of low interest rates. Home equity lending also increased, by 18 percent, as consumers look ahead to spring remodeling efforts and other weather-related home projects.

Those increases were countered by a drop in commercial and industrial lending of approximately 14 percent, continuing a downturn from the month before. Treasury specifically cited weakening demands for such loans as a factor, as businesses cut back on borrowing to finance acquisitions, plants, equipment and inventory.

However, many businesses are also reporting that they are unable to get credit when they need it. The Wall Street Journal quoted Dan Carl, a Michigan car dealer, as saying his bank refused to renew some of his credit lines and raised his interest rates and demanded additional collateral for other loans.

Car dealers commonly rely on revolving credit to replenish their vehicle inventories. Carl said the tighter credit requirements were a factor in his recent decision to lay off one-fifth of his employees and close one of his dealerships.

Banks are also cutting back on credit-card lending, with new credit card account originations down by 2.7 percent in February, according to the Treasury report. That's only part of the picture, though, as banks report they are limiting their credit exposure by closing long-inactive accounts and reducing credit limits on some customers.

Through the Capital Purchase Program of TARP, the Treasury Department provided U.S. banks with some $200 billion in capital to help support lending and free up credit. The program has drawn criticism, in part because banks have been reluctant to use the additional capital for new lending and to free up credit. However, the Treasury Department says that without the additional funds, February's lending figures would have been even lower.