SCOTT SIMON, host:
This is WEEKEND EDITION from NPR News. I'm Scott Simon.
For many Americans these days the dream of owning a home may be a dream deferred as credit regulations tighten in a market that's been staggered by defaults and foreclosures. To meet this need, many new lenders are offering themselves and their money as an alternative to banks.
To help assort through who's lending what to whom and how we turn to Nicolas Retsinas, the director of the Joint Center for Housing Studies at Harvard University. Professor, thanks very much for being with us.
Professor NICOLAS RETSINAS (Director, Joint Center for Housing Studies, Harvard University): Nice to be with you.
SIMON: Are we correct that credit is tightening?
Prof. RETSINAS: Credit is definitely tightening. The extension of credit is essentially predicated on the belief of the lender that that person will pay back the loan. As they become increasingly skeptical, they narrow and narrow the slot, if you will, that people could apply for a loan.
SIMON: All over this country there are people who are buying homes, or for that matter starting businesses using forms of credit that have little to do with the bank, aren't they?
Prof. RETSINAS: That is true. The first line of defense for people has generally been credit cards, and we're seeing increases in the use of credit cards but we're also starting to see increases in payday lending and increases in other informal kinds of borrowing.
Little too early to track the magnitude of those changes but there certainly appears to be a migration from the formal sector to some of this more informal sector.
SIMON: Could you please tell me about - and forgive me if I rattle off a number of enterprises that aren't related. But the whole idea is that they make capital available. There is lammick(ph) finance firms, there's person-to-person loans, there are saving pools. Immigrant communities in this country have often figured out ways to accumulate capital and make it available as credit in communities that haven't always been able to qualify for bank loans.
Prof. RETSINAS: More and more of that is taking place. There is a long history of people coming together and aggregating money, pools of capital, and then loaning it to its members. Indeed that is the origin of residential lending in the United States back starting in the early 19th century.
So it exists today, and it really depends on establishing the appropriate network. And that, again, is problematic. In other parts of the world, that has often been the precondition to the phenomena called micro-lending, which is loaning of small amounts of money.
In the United States that never took off because of the omnipresence of credit cards. But now as credit cards begin to tighten their credit these kinds of alternatives are now being revisited.
SIMON: You mentioned some of the alternative lending forms were problematic. I wonder if I could get you to expand on that.
Prof. RETSINAS: Sure. They're problematic, one, because of access. Again, you need to be part of a network to get to it. Secondly is usually the amount of money that's available isn't always in sync with the amount of money you need. It might be just enough to get you through the current sort of crisis.
And what happens in those kinds of situations is sometimes you get a piling up. That is, the money you owe then is lumped into the next amount of money you borrow and you find yourself way behind the eight ball. Now, at the same time if we didn't have these alternative sources, whether they be the savings pools in the Asian communities, some of the Islamic financing through some of the religious institutions, there would be almost no credit available in some communities.
So they are filing a vacuum but it's hard to imagine how they could be sustainable at scale over the long term.
SIMON: Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard, thanks very much.
Prof. RETSINAS: Nice to be with you.
SIMON: So, why are mortgages and other loans harder to come by these days? Jim Rokakis, the treasurer of Cuyahoga County, Ohio has one possible explanation:
Mr. JIM ROKAKIS (Treasurer, Cuyahoga County, Ohio): There are these people getting these loans who are flipping them. They don't even have jobs, they're lying. And it's happening not on a small scale, as I had seen in the past -people who come in and lie on mortgage apps - but on a really wide scale.
SIMON: Next week we'll bring you a report from Cuyahoga County where credit is tight and foreclosures are a daily fact of life.
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