Brother, can you spare a dime for the big banks, too?

by Ryan Caione, August 27th, 2007, 6:33 am

The long list of lenders in peril is well-documented. (Added to the drumbeat was last week’s news that already-troubled Accredited Home Lenders and NovaStar will close offices and lay off hundreds of workers and Lehman Brothers will close its subprime wholesale unit, BNC Mortgage.)

 However there was a ray of hope for the largest residential lender, Countrywide, which received a $2 billion equity investment from Bank of America. Countrywide’s stock price leapt while CEO and co-founder Angelo Mozilo proclaimed the company a “survivor”. (A similar deal was struck earlier this year when Citigroup provided ACC Capital Holdings, the parent company of Ameriquest, an infusion of capital.)

But the big banks are getting buffeted, too. So what happens when they need money?  They go to the government, naturally. The four largest banks in the US, Citigroup, Bank of America, JPMorgan Chase, and Wachovia, tapped the Federal Reserve’s discount credit window to the tune of $2 billion — $500 million apiece —- after the Fed lowered the primary credit rates and temporarily lengthened the terms of the loans from one day to one month. (It’s not a government bailout, exactly, though some are suggesting that it’s time for one. Maintaining liquidity is one of the Fed’s mandates, and the short-term loans have already been repaid, for the most part.)

Still, where does that leave folks with so-so credit who want their piece of The American Dream? The government assistance isn’t going only to the big boys. Increasingly, consumers are returning to the Federal Housing Administration, which, after a three-year decline, is seeing a spike in loan applications. Borrowers, of course, won’t get a too-good-to-be-true, interest-only, adjustable-rate jumbo loan and must endure some bureaucracy, but a bill is in the Senate that will allow the FHA to offer loans with no down payments and make its loans available through mortgage brokers. Predictably, some members of Congress are grousing that increased government backing of home mortgages will hurt the private sector lenders. Seems like the lenders already took care of that themselves, though.