Consumers are having a tougher time borrowing money through mortgages, home equity loans, and small business loans, according to new first quarter 2008 data from the Federal Reserve. The majority of banks have tightened credit at a time when most Americans need it more than ever.

Although borrowers throughout the U.S. have understood for months that it's increasingly more difficult to get loan approval, the phenomenon was officially confirmed by the Federal Reserve. Analysis and proof came in the form of a report based on the Fed's own April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices.

Some of the findings that indicate widespread credit tightening include the following revelations:

• About 70 percent of American banks have tightened their lending standards for approving applications for home equity lines of credit.
• Banks are increasing interest-rate spreads, requiring more documentation, demanding more collateral, and charging higher fees.
• Almost 80 percent of these financial institutions have tightened standards for commercial real estate loans, shattering the myth that the current crisis only hurts residential housing and home equity, and not the commercial side of the property industry.
• About 60 percent of banks polled have tightened their standards on prime mortgages, debunking the notion that the mortgage crisis was going to be limited to a tiny fraction of loans within the obscure subprime category.
• The majority of lenders who responded revealed that underwriting standards were close to, or above, their historical highs for nearly all loan categories.
• Conversely, almost no banks eased credit in a significant way for any of their various types of loans.

Considering the facts

The tighter standards and more conservative lending practices are good news, since they indicate a more prudent lending policy. This was conspicuously absent during the years that preceded the current crisis and helped cause it. But potential borrowers need to consider a few other disturbing revelations. These include:

• Fannie Mae-considered by many to be a solid government-backed pillar of the mortgage industry-took a $2.2 billion quarterly loss in May.
• Despite the fact that this federal is supposed to keep our mortgage markets healthy, it's running short on cash. With lower capital reserves, Fannie Mae is nearing the limit for "core capital" assets.
• Once Fannie Mae's threshold is passed, taxpayers will have to foot the bill. Currently, it has some $840 billion in core capital, but it owes trillions in obligations.

Loans adversely affected by this worsening trend include home mortgages and refinance, home equity, as well as commercial loans. Students were not immune, either, as tuition loans are also drying up. The Fed data validates the fact that the subprime credit crunch-at first downplayed by many politicians, economists, and lenders as limited to only the "bad credit" loan market-is having a widespread negative impact on credit across the board.