It might be cheaper to rent a property in 2023; higher interest rates and a softer rental market explain why

The Economist graph, from
U.S. government data

For the first time in decades, renting a home or apartment in 2023 was cheaper than buying one. "The median rent in America's 50 largest metropolitan areas costs about $1,750, which is down nearly $30 from a year ago, according to new data from realtor.com, and it was the fifth such consecutive drop for up to two-bedroom homes," reports Omar Mohammed of Newsweek. "The rental market is seeing a softening partly due to more homes available for renters who are driving up the demand."

Historically, Americans have enjoyed mortgage payments that are less expensive than paying rent, but over the past two years, interest rates have soared "as the Federal Reserve has hiked rates to their highest levels in two decades to battle inflation, which spiked to a 40-year high at one point," Mohammed explains. "The jump in rates has pushed the borrowing costs for homes, making the prospect of buying a home unaffordable for Americans."

Looking at the dynamic change, The Economist reports, "Between 2011 and 2020, the monthly mortgage payment on a typical home was 12% lower than the rental for a similar property (assuming a deposit of 13%, the current national average). A steady rise in home values, worth roughly 7% a year over the past decade, also ensured that buyers built equity in their homes. . . . But now the choice between buying and renting looks different."

Mohammed writes: "Some housing economists are begging the Fed not to raise rates again to give some relief to the sector that counts for 16% of U.S. economic activity."

Farm debt shifts to smaller banks as Wall Street lenders increasingly bail on less profitable farming sector

As cash-strapped American farmers are increasingly forced to declare bankruptcy or retire early, farm loans are shifting to smaller banks as large Wall Street lenders pull out of the less profitable sector. "Fewer loan options can threaten a farm’s survival, particularly in an era when farm incomes have been cut nearly in half since 2013," P.J. Huffstutter and Jason Lange report for Reuters. "Total U.S. farm debt was $317 billion a decade ago (adjusted for inflation), but is expected to rise to $426 billion this year--almost as high as levels seen in the 1980s farm crisis."

After the subprime mortgage bubble burst in the late 2000s, many big banks dramatically expanded their farm loan portfolios. It was a profitable move at the time, since U.S. farmers were doing well and benefited from high grain and farmland prices. JPMorgan Chase & Co., for example, increased its farm loans to $1.1 billion between 2008 and 2015, a 76 percent jump, Reuters reports.

"But now - after years of falling farm income and an intensifying U.S.-China trade war - JPMorgan and other Wall Street banks are heading for the exits, according to a Reuters analysis of the farm-loan holdings they reported to the Federal Deposit Insurance Corporation," Reuters reports. "The agricultural loan portfolios of the nation’s top 30 banks fell by $3.9 billion, to $18.3 billion, between their peak in December 2015 and March 2019, the analysis showed. That’s a 17.5 percent decline."

Farmers rely on loans to buy and refinance land, as well as pay for operational expenses. Since demand for farm credit continues to grow, farmers increasingly turn to smaller regional and local banks. But lenders are becoming more cautious about lending to farmers, especially since smaller rural banks are more dependent on their farm lending portfolios and can't as easily afford to take on defaulted loans.

Gordon Giese, a 66-year-old corn and dairy farmer in Wisconsin, had to sell most of his cows, his house and a third of his land to pay his farm's debt last year after he couldn't get a loan. "If you have any signs of trouble, the banks don’t want to work with you," Giese told Reuters. "I don’t want to get out of farming, but we might be forced to."

Senate passes bill easing restrictions on smaller banks, which make most loans to agriculture

The Senate passed a bill this week to ease restrictions on small- and mid-sized banks that provide half of all small business loans and 80 percent of agricultural loans. Republican Sen. Mike Crapo's bill went to the House on a 67-31 vote; all 51 Republicans supported it, as well as 16 Democratic senators and one independent, mostly from rural states, who worked out bipartisan compromises with the Idahoan.

"The bill makes a five-fold increase, to $250 billion, in the level of assets at which banks are deemed to pose a potential threat if they failed. The change would ease regulations and oversight on more than two dozen financial companies, including BB&T Corp., SunTrust Banks, Fifth Third Bancorp and American Express," Kevin Freking and Marcy Gordon report for The Associated Press. "Crapo, chairman of the Senate Committee on Banking, Housing and Urban Affairs, emphasized that the Federal Reserve would still have the authority to apply tougher standards for banks with between $100 billion and $250 billion in assets."

The restrictions were first passed as part of the Dodd-Frank law after the 2008 financial crisis. Under it, banks that are "too big to fail" must be assessed by the Federal Reserve each year to make sure they have enough capital to survive an economic shock, and must also submit a plan called a "living will" that detail how they would liquidate assets if they fail so as not to hurt the financial system.

The bill would also exempt some banks and credit unions from having to report some mortgage loan data such as the applicant's age, credit score, total loan costs and interest rate. Democratic Sen. Elizabeth Warren of Massachusetts, who opposed the bill, argued it would make it easier for banks to discriminate against minority applicants without anyone noticing. The bill would also require free credit freezes for consumers affected by data breaches such as the one from Equifax.

Federally sponsored lenders will increase rural home loans; county-level map shows under-served areas

Though the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") have had limited reach into rural America, the government-sponsored mortgage giants have new plans to make it easier for rural homebuyers to get a loan. The two companies own almost half of all U.S. mortgages, but only 12 percent of the rural home loans that were initiated between 2012 and 2015.

Because of this discrepancy, Congress is requiring Fannie and Freddie to increase their business in high-needs rural areas and populations, finance more housing through small banks, and help preserve rental housing. The new requirements will take effect on Jan. 1, 2018. "In many respects, Fannie and Freddie’s current products are not particularly well-suited for many rural markets, as evidenced by their low activity and the congressional mandate itself. New and creative approaches are needed to fully achieve their goals in rural areas," Lance George writes for The Daily Yonder. George is the director of research and information at the Housing Assistance Council, which helps local organizations build homes in rural America and did this map:

"The most effective approach would be for Fannie and Freddie to partner with existing housing providers, nonprofits, and tribes, who already work in these communities," George writes. "These entities have the experience, local trust, and insights to help Fannie and Freddie in these often hard to reach areas. Ultimately, rural America is a big place, with many different housing markets. To make this plan a success, Fannie and Freddie will need to better understand these often-forgotten markets, and commit meaningful efforts and investment."

Proposal would ease rules for small mortgage lenders; restrictions are hurting community banks

The Consumer Financial Protection Bureau has proposed changes "to its mortgage rules to encourage responsible lending by small creditors in rural areas, that if approved could increase the number of small institutions able to offer mortgages and help small creditors to comply with business practice rules set forth by the agency," Ashlee Kieler reports for Consumerist.

"Currently, there are restrictions on lending mortgages to borrowers whose debt would exceed 43 percent of their pretax income," Kieler writes. "The proposed changes would free more banks and credit unions to offer riskier loans to borrowers above this 43 percent debt-to-income ratio. As a result of that change, the CFPB says it could increase the number of small lenders, which includes banks and credit unions, to 10,400 from around 9,700."

The CFPB proposal "would allow more banks and credit unions to achieve small-lender status, freeing them to make riskier loans by giving mortgages to borrowers above the 43 percent threshold," Alan Zibel reports for The Wall Street Journal. "Small lenders and many in the mortgage industry say the riskiness of such mortgages is limited, in part because they will have to hold these loans in their investment portfolios. The firm would be on the hook for the losses when borrowers default, giving the banks an incentive to make only good loans."

The Independent Community Bankers of America said they 73 percent of community bankers it surveyed "say that new mortgage regulations are keeping them from making more residential mortgage loans in their communities," Trey Garrison reports for Housingwire. ICBA president and CEO Camden Fine told Garrison, “The results show that Congress should act quickly on ICBA’s Plan for Prosperity legislative platform, which would implement common-sense reforms to support continued access to credit without compromising consumer protection or safety and soundness.”

The survey also found that 66 percent of respondents "said they do not provide loans that are outside the Consumer Financial Protection Bureau’s Qualified Mortgage definition or would only do so in special cases," Garrison writes. "Just 25 percent of community bankers said they are providing loans that do not fit the CFPB’s QM definition, showing that the new restrictions have shrunk the credit box and taken away lender discretion in granting credit. Meanwhile, half of all rural banks said they do not qualify for the QM rule’s 'rural' exception, which demonstrates that exemptions from the standard are too narrow, limiting access to credit for consumers who need it."

County-level map shows mortgage interest deductions; rates higher in West, East Coast

Brookings has created a county-level interactive map that looks at the mortgage interest deduction (MID) on owner-occupied homes. "The MID allows taxpayers to deduct mortgage interest on up to $1 million in debt used to purchase or refinance a primary or secondary home, as well as for up to $100,000 of home equity debt not used to buy, build or improve the home," Benjamin Harris and Lucie Parker write for Brookings. "The MID is available only to the minority of households whose combined itemized deductions—which include such items as state and local taxes paid and charitable contributions, as well as mortgage interest—exceed the standard deduction."

The average mortgage interest deducted ranged from $3,450 to $18,692. "Income and housing differences fuel geographic variation in the mortgage interest deduction," Harris and Parker write. "Higher income taxpayers are more likely to have itemized deductions that exceed the standard deduction; taxpayers in areas with high housing values are also more likely to have larger mortgages and subsequently pay more in mortgage interest." (Brookings map: Average mortgage interest deducted in 2012. To view the interactive map click here)

"This geographic variation leads to a large gap between low and high claiming counties," Harris and Parker write. The bottom 10 counties have taxpayer claim rates of 7.3 percent or lower, while the top 10 have claim rates of 28.3 percent or higher. Adding in itemized deductions and the bottom 10 have mortgage interest deductions of $5,241 or lower, while the top 10 have deductions of $9,433 or greater.

"Deductible mortgage interest tends to be highest in the West, on the East Coast and near some metropolitan areas inland," Harris and Parker write. "Deductible mortgage interest is particularly high in California and the Northeast. Inland states east of the Mississippi tend to have lower housing values and, subsequently, fewer deductions for mortgage interest." (Read more)

With fewer local-based banks, rural business owners often turn to relatives for loans, Texas study says

Many small-business owners in rural areas would rather ask relatives for loans, remortgage their homes, or draw from pensions than deal with the unfamiliarity of a corporate, urban bank located many miles away, according to a Baylor University study of Texas banks published in the journals Rural Sociology and International Innovation. As the number of banks continues to decrease in the U.S., leaving some rural areas without an institution, some small business owners are dealing with larger banks who don't know them on an individual basis, offer high interest rates, or reject their loans. (Small Business Trends graphic based on information from the Federal Financial Examination Council)

"Many small businesses, especially fledglings, do not have 'hard data' on earnings and credit scores to compete for loans at big, nonlocal banks," the study says. "Some interviewees reported that even when restructured local banks are familiar with individuals' 'soft data' -- such as credit history and reputation -- they are far more interested in lending to companies that will bring in large manufacturing." 

The number of banking firms in the U.S. dropped by more than half between 1984 and 2011, to fewer than 6,300, but during that time the number of branches doubled to more than 83,000, according to the Federal Deposit Insurance Corp. Many banks that closed were in rural areas, which means "that local lending to individuals based on 'relational' banking -- with lenders being aware of borrowers' reputation, credit history and trustworthiness in the community -- has dropped," the study says.

Researchers used a small sample size, interviewing 30 small business owners in rural Texas, but "the research is important because local businesses and entrepreneurs are increasingly vital for rural employment growth," said Carson Mencken, professor of sociology at Baylor. "Many rural areas lack job opportunities or have lost them, in part because rural manufacturing jobs have been exported overseas to lower-wage destinations." (Read more)

Rural banks continue to thrive by knowing their communities, and offering services people want

While large banks continue to knock off mid-size banks by offering all the bells and whistles that come with joining a national, and sometimes worldwide corporation, small, rural banks continue to survive and thrive by offering a personal touch and service larger banks can't afford to offer, Brendan Greeley reports for Bloomberg Businessweek. Even though the number of U.S. banks has dropped from 12,000 to 6,000 since 1980, community banks, defined by the Federal Deposit Insurance Corp. as having less than $1 billion in assets, hold 70 percent of the deposits in rural areas. Most community banks serve one, two or three counties.

"Small banks in rural areas do a better job of what is generally considered Banking 101: underwriting home mortgages and loans to farms and small businesses," Greeley writes. "According to the FDIC in every five-year period since 1991, a lower percentage of loans from community banks has gone bad. Richard Brown, the FDIC’s chief economist, says small banks have a competitive advantage with 'nonquantitative' (sometimes called 'soft') information—knowledge of their customers and the local economy." (Read more)

American households continued to suffer after recession ended, Census reports

American households continued to face hardships even in the aftermath of the recession. The Census Bureau said in a report released Thursday that this is the case for more than a fifth of American households, Emily Alpert reports for the Los Angeles Times. (Associated Press photo by David Goldman: Michael and Patricia Jackson of Marietta, Ga., struggled to keep a house worth $100,000 less than what they owed)

Being unable to cover rent or mortgage payments, leaving bills unpaid, losing phone service, skipping needed doctor visits, lacking enough food for the family and other financial struggles were some of the hardships noted.

Such hardships remained more prevalent in 2011 than in 2005, before the downturn. American households unable to cover "essential expenses" of any kind rose from 14 percent to 16 percent, households suffering from food shortages jumped from 2 percent to 3 percent and households with unpaid rent or mortgage climbed from 6 percent to 8 percent, writes Alpert. 

The report also found that while most Americans believe they will get help from community agencies and those close to them when they are in financial binds, a much smaller share of households actually receive such help, writes Alpert. For example, when households had trouble paying rent or mortgage, only 5 percent were helped by friends, 17 percent by family and 10 percent from elsewhere, the report found.

Despite the financial hardships, the amount of technology in households increased. The report showed that in 2011, 78 percent of households surveyed had a computer, compared to 67 percent in 2005. Cellphones were found in 89 percent of households in 2011, up from 71 percent in 2005, Alpert writes.

The report is based on the Survey of Income and Program Participation, which interviewed more than 36,000 American households from May to August 2011. The report is here.

Website offers useful, local data on foreclosures, sales and other real-estate information

RealtyTrac can be a good source for looking up local, state and national information on real estate and foreclosures. Its data gathering has been reported to be slow or spotty in some places, and some communities are not tracked, so journalists should check with their local, on-the-ground sources for corroboration and perspective. Still, the site offers a great deal of useful information, just by entering a ZIP code. To visit the site click here. Here's one of their latest charts.

Rural banks could gain advantage from federal mortgage rule exemption

New federal mortgage rules include a key standard: Consumers can't get a qualified mortgage if they have debts exceeding 43 percent of their income. But the Consumer Financial Protection Bureau pushed for, and got, an exemption for small banks with less than $2 billion in assets, giving them more freedom to lend in their communities to low- and middle-income people, who make up large portions of their clientele, Danielle Douglas of The Washington Post reports.

"Consumer advocates say the new standards could shut out first-time home buyers or others with low income," but the exemption for small banks "could provide a pathway for these types of borrowers and offer credit unions and other small lenders a bigger slice of the mortgage market, currently dominated by a few big banks," Douglas writes. Consumer Bureau director Richard Cordray told her that community banks and credit unions didn't cause the recent financial crisis and shouldn't be punished for it: "Their traditional model of relationship lending has been beneficial for many people in rural areas and small towns across the country."

There's a catch: To get the exemption, small banks would have to keep loans on their own books, rather than sell them to investors, Douglas reports. But the majority of community banks already do that. Independent Community Bankers of America president Camden Fine said he was pleased so many of his members got exemptions. The rule "could shift at least a certain class of borrowers toward community banks and away from the big national players because community banks will have more flexibility," he told Douglas. (Read more)

For land leased to oil and gas companies, USDA may require environmental review before mortgage loan

UPDATE, March 21: Agriculture Secretary Tom Vilsack said USDA"will continue to exempt rural housing loans from environmental reviews that may slow expansion of oil and natural-gas drilling," Alan Bjerga of Bloomberg News reports. 

The Department of Agriculture may require environmental reviews before giving mortgages to people who have leased their land for oil and gas drilling, affecting people living in rural areas where most drilling is done. Ian Urbina of The New York Times reports that about $18 million in loans was handed out last year through the USDA's Rural Housing Service program to mostly low-income rural residents in Pennsylvania, Texas and Louisiana, where there's been a recent natural gas boom. The decision would also affect the Rural Business and Cooperative program.

Environmental reviews haven't been required before loans are made, but Urbina reports the decision "reflects a growing concern that lending to owners of properties with drilling leases might violate the National Environmental Policy Act, which requires environmental reviews before federal money is spent." In USDA emails sent to Congress and landowners, several reasons for the decision are cited, including cost. The reviews would "give the public a fuller accounting of the potential environmental risks of drilling (and) help protect the agency from litigation from environmental groups -- a cost that would ultimately be borne by taxpayers." It would also mean landowners who already signed drilling leases would "face hurdles if they applied for federally backed mortgages." (Read more)

USDA starts mortgage refinancing program, enterprise grant program for rural areas

The U.S. Department of Agriculture is launching a pilot program to help rural homeowners refinance mortgages to lower monthly payments as part of its "ongoing efforts to help middle-class families, create jobs and strengthen the economy," a USDA press release said. The Single Family Housing Guaranteed Rural Refinance program will operate in 19 states hit hardest by the housing market downturn, and where homeowners have loans that were made or guaranteed by USDA Rural Development.

To be eligible, borrowers must have made mortgage payments on time for 12 consecutive months and the refinanced rates must be lower than original rates. Rural Development expects about 235,000 people will be eligible for the program, which will be reviewed after two years to determine its future. The 19 states are: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.

Rural Development is also accepting applications for rural enterprise grants. Funding is available to public bodies, nonprofits and Indian tribes. "The goal is to facilitate and finance the development of small and emerging private business enterprises in rural communities and cities with up to 50,000 in population," reports Megan Kamerick of New Mexico Business Weekly. Priority will be given to requests of $50,000 or less and for projects that support renewable energy, local food systems, multi-county or mulit-state economic and community development, cooperatives, business programs in counties with persistent poverty and underserved populations, including minority and women-owned businesses. (Read more)

RealtyTrac, a popular monitor of foreclosures, ignores many rural counties

U.S. efforts to reverse the housing crisis may not be correctly considering rural foreclosures. "A company called RealtyTrac provides some of the most widely followed statistics on home foreclosures, but it fails to report on more than 900 rural counties," Scott Finn of West Virginia Public Broadcasting reports for National Public Radio. Critics say failing to include these counties promotes the myth that there is no foreclosure crisis in rural America.

Lawmakers in West Virginia abandoned a predatory-lending bill after seeing RealtyTrac's low foreclosure figures for the state. In 2008, RealtyTrac counted fewer than 500 foreclosures in the state. New federal statistics note 12,000 foreclosure notices in the state since the start of 2007. RealtyTrac's reports are also used widely by both the government and journalists to get a picture of the nation's housing market.

"We know we're underreporting in West Virginia. We know we're not covering the whole state as thoroughly as we'd like to," Rick Sharga of RealtyTrac tells Finn. But he notes they are still more focused on urban areas: "If I miss a county in California, I miss more in a month than I'd miss in West Virginia for the whole year."


Eight of the 10 most rural states in the country are on RealtyTrac's top 10 list of states with the lowest foreclosure rates. "It's ridiculous, it's embarrassing, it's stupid," Sen. Jay Rockefeller, D-W.Va., tells Finn . "I'm going to fight to make sure everybody gets accurate information, and they get counted."

The Foreclosure Prevention Act, passed by Congress in July, required the Department of Housing and Urban Development to measure state foreclosure rates. HUD's measurements showed significantly higher foreclosure rates in rural states, Finn reports. Mississippi, one of RealtyTrac's top 10 lowest foreclosure states, ranked near the bottom of HUD's list. The law only required HUD to compile the list one time, but Rockefeller wants the department to continue tracking foreclosures to avoid relying on incomplete data from companies like RealtyTrac. (Read more)

Home-foreclosure crisis spreading in rural America

"When the mortgage mess erupted, some economists believed that rural America wouldn't be heavily affected," writes Nick Timiraos of The Wall Street Journal. "Farms were prospering. The housing boom largely bypassed small rural towns. And exotic, new mortgages at first were seen as an urban and suburban phenomenon. But rural homeowners, it turns out, were just as susceptible to subprime loans and easy lending as the rest of the country, often refinancing existing mortgages to take out cash or pay off debts." And now "The home-foreclosure crisis ... has spread to rural America."

Foreclosures are still less common in rural areas than in metropolitan areas, and the decline in home values has also been less in rural areas, but "defaults in rural counties are rising rapidly and setting off concerns that the population in these already sparsely populated towns will decline further," Timiraos reports, using Minnesota as his object example.

The vulnerability appears greater among rural residents who do not farm, or farm only part-time. "Full-scale farms are in somewhat better shape because agricultural mortgage lenders didn't follow the looser standards that prevailed elsewhere," Timiraos writes. "Two years of record commodity prices have given farms a financial cushion, but the manufacturing and construction trades that were tied to agriculture are reeling." (Read more)

Continued layoffs by automobile companies, parts suppliers and other manufacturers in the Midwest could also raise rural foreclosure rates. Many factory workers in the region live in rural areas, farm part-time and finance their homes through agricultural lenders.

First-time homeowners in USDA housing program have a very low foreclosure rate

First-time homeowners in rural America are not part of the wave of foreclosures sweeping the country. Russ Davis, administrator of the Department of Agriculture's housing programs, says foreclosure rates among rural dwellers are much lower than their metropolitan counterparts.

"This summer we posted our lowest foreclosure rates that I’ve seen in the 40 years where I’ve seen statistics," Davis told the Agri-Pulse newsletter. "Delinquencies were much lower than the private sector." Davis says his program's low foreclosure rates can be explained by a number of factors, including the department's recognition of the nature of rural work. "There’s a lot of seasonal work, shift work -- a lot of income patterns that are different from other parts of the country," he says, and lending policies reflect those patterns. At the same time, rural houses were not part of the "bubble," where overvaluation led to a housing market crash. (Read more; paid subscription required)

Private-sector loans, not Fannie and Freddie, triggered the mortgage crisis, McClatchy reports

In the run-up to the Iraq War, one news organization more than any other employed the skepticism and watchdog reporting called for in such a situation: the Washington bureau of Knight-Ridder Newspapers. Knight-Ridder is no more, but the bureau lives on under the McClatchy Co., and it still has a hard-nosed approach, displayed this weekend in a story on what caused the mortgage meltdown and the financial crisis. We relay this story not only because it has a rural angle, but because McClatchy reporters' work often doesn't reach as large an audience as those at major national newspapers.

Rebutting "a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans," David Goldstein and Kevin G. Hall report, "Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis."

The charges focus on mortgage finance giants Fannie Mae and Freddie Mac. Hall and Goldstein write, "In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families, [which] represent a small portion of overall lending."

"Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent," the reporters write. "Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble."

The story also largely debunks the notion that the meltdown should be blamed on the Community Reinvestment Act, a 1977 law designed to stop discrimination against minorities and see that banks recycled money in their local markets. "Only commercial banks and thrifts must follow CRA rules," Goldstein and Hall note. "The investment banks don't, nor did the now-bankrupt non-bank lenders . . . that underwrote most of the subprime loans. These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans." (Read more)

But when it comes to the broader, global financial crisis caused by the mortgage meltdown, the Clinton administration bears part of the blame, a man who headed the Securities and Exchange Commission in the last three years of the administration told ProPublica, an independent, non-profit newsroom. Arthur Levitt "acknowledges that he and his colleagues a decade ago 'beat back' regulatory efforts that could have prevented credit markets from becoming so precariously balanced they were 'milliseconds' from disaster," Sharona Coutts and Jake Bernstein report. (Read more)

Rural impact of the credit crisis: Time for a look

The credit crisis has dominated the headlines over the past week, but very little of the focus in national media has been on what it means for rural America. However, many regional and specialized news sources are trying to address this worrisome question. We offer a few examples as encouragement for other rural journalists to probe the question.

Douglas Burns of the Iowa Independent asked Tom Gronstal, the state's banking superintendent, how the collapse of Lehman Brothers, the sale of Merrill Lynch and the federal bailout of AIG will affect Iowans. Gronstal said the rural environment will alleviate some of the housing pressures: "Most of the community banks develop a relatively long-term relationship with their customers." For that reason, Burns writes, banks "aren’t looking to finance homes people can’t afford." But Gronstal does admit that "it will make it harder to borrow money for business and agriculture," and that if we are not already in a recession, one is inevitable. (Read more)

One Vermont newspaper focused on the effects that local businesspeople and economists anticipated would experience in their community. "Life is like a food chain and we're all affected," James McNeil, the town's state representative, told Cristina Kumka of the Rutland Herald. Don Keelan, a local accountant and investor, said "The average man will get affected through taxes," and the crisis would result in a continued weakening of the dollar and a loss of capital for start-up companies. (Read more)

Mike McGinnis and Jeff Caldwell of Agriculture Online examined the effects on farmers. "AIG especially is a large player in the ag sector," says Jason Ward of Northstar Commodity Investment Co., and "banks are tightening credit with everyone, which directly tightens credit at ag banks." At the same time, an overall weakened market will affect market prices for agricultural commodities, although Matt Pierce ... floor trader for Futures International LLC, says, "When the financial collapse is over, all agricultural commodites will rally significantly."

The article also addresses reactions to the crisis from farmers, many of whom expressed frustration at government intervention. "I'm still confused -- or maybe upset is the better word for it -- that it appears the government will bail out all of these investment banks that made their bed and are now begging for someone else to sleep in it," writes one member on the website's Marketing Talk forum, identified as GoredHusker. "All we've really learned from all of this is in order to survive get as big as you can. Get so big that the government can't allow you to fail." (Read more)

Outside loans bring credit crunch to rural banks

As the credit crunch worsens nationwide rural banks are being hurt. Although less likely to be big mortgage lenders, regional banks have invested outside their communities in order to boost their volume of loans. As Jack Armstrong of The Times-Union in Jacksonville writes,"Known as participation loans, these investments allow smaller, often rural banks to supplement low demand for loans in their areas by taking on loans from banks in more rapidly growing regions."

Many rural banks are feeling the effects of bad loans. "The trickle-down from bad participation loans is causing rural bank officials to take second looks, especially those loans tied to real estate and residential construction," Armstrong reports. Still, the downturn is not thought to be detrimental to rural banks' long term stability."Although it's a problem, it's not likely to lead to many small bank failures," Armstrong reports. "Participation loans rarely make up a large percentage of a rural bank's loan portfolio."

It is difficult to estimate how many bad participation loans a particular bank holds, because financial reports do not separate them out. Even if the economy continues to worsen participation loans should not have any major repercussions on the longterm stability of rural banks. But it's a question enterprising rural journalists should ask their local banks. (Read more)