Credit Q&A

This is helpful.

BOSTON (AP) -- While it may be more Main Street-friendly than last fall's initial bailout, don't expect the financial relief overhaul announced Tuesday to be an equal-opportunity plan.

If you've got a decent credit score, expect borrowing options to grow soon, says
Nariman Behravesh, chief economist with the Lexington, Mass.-based research company IHS Global Insight. But don't hold your breath if your rating is nothing to write home
about.

In an interview, Behravesh discussed his expectations for a plan that includes a
projected $1 trillion partnership between the government and private investors to
unclog credit markets. He expects interest rates for a range of consumer loans will
decline, much as mortgage rates hit historic lows weeks after the Federal Reserve
announced plans in late November to buy up to $500 billion in mortgage-backed
securities.

Here are excerpts from the interview:

Q: What do you think the revised federal bailout will offer folks on Main Street?
A: Interest rates will come down, credit conditions will ease. The operative term here
is "those who qualify." Whether it's for mortgages or car loans or whatever, if your
credit score is good, then I think it will be easier for you. If it's not, that is not
going to change things too much for the families and small businesses whose credit
scores and records are poor. That will take longer.

Q: Why won't the benefits also reach people with lower credit scores -- say in subprime
territory of 600 or lower?
A: Because companies that might now be willing to extend credit to people with decent
scores are still too reluctant to extend it those with lower scores. The pendulum has
swung in terms of caution. You might get some people with a middling credit score to do
OK. But for people who don't have good scores, it will continue to be tough to borrow,
at least for another year.

Q: What will need to happen before people with lower scores see more credit flow their
way?
A: Better economic times. That is the reality.

Q: How might the government's plan to buy so-called toxic assets from banks trickle
down to benefit consumers?
A: As long as these toxic assets remain on balance sheets, banks are very worried that
their asset liability position is very vulnerable, and that they could potentially
become insolvent -- especially if the value of these toxic assets gets clobbered again
by the markets. As long as these toxic assets remain on balance sheets, banks are very
reluctant to make new loans and add to their liabilities -- regardless of how good the
loans are.
But if you can get them off balance sheets, then they are much more willing to lend,
and credit really begins to flow. The first part of TARP (the Troubled Asset Relief
Program) did nothing to encourage new lending. The capital put into the banking system
essentially just went nowhere, because the banks just sat on it because they were
worried about their balance sheets.