NEW YORK (TheStreet) -- We've all seen stories about jobless borrowers struggling to make ends meet, employed homeowners who are underwater on their mortgages, and small-business owners trying to stay afloat without adequate financing -- the economic downturn's impact on Average Joe.
What we've heard less about is Above-Average Joe's difficulties in getting a loan at a reasonable rate, if he can get a loan at all.
The federal government has thrown a whole lot of money at the housing and lending markets, both directly and indirectly. But those funds have been aimed squarely at low-income borrowers or mom-and-pop shops trying to get a foothold in the new economic climate.
On the housing front, there's the $75 billion mortgage-workout program for troubled homeowners, combined with support from the Federal Housing Administration, which guarantees certain types of loans to less-privileged borrowers. Those loans are, in turn, bought by Fannie Mae (FNM) (Stock Quote: FNM) and Freddie Mac (FRE) (Stock Quote: FRE), which is really the only reason why banks like Bank of America (BAC) (Stock Quote: BAC), Citigroup (C) (Stock Quote: C), and JPMorgan Chase (JPM) (Stock Quote: JPM) have been making them at all.
On the commercial front, Congress has granted the Small Business Administration repeated requests for more funds to guarantee small- and medium-sized business loans. The agency has loosened its standards to qualify more desperate borrowers. Over the past 15 months, the SBA has extended nearly $1 billion worth of guarantees to support roughly $25 billion worth of new commercial loans.
(FNM) (FRE) (BAC) (C) (JPM) Broadly speaking, there's also the Federal Reserve's policy of lending money to banks for nearly nothing and funneling roughly $2 trillion into the debt markets -- all of which has kept rates at historically low levels.
But the policies and programs have especially benefited so-called "conforming" borrowers who are eligible for federal programs. Likewise, it has put nonconforming borrowers who have better credit metrics at a disadvantage.
(FNM) (FRE) (BAC) (C) (JPM) "You know who's paying the most for their credit today? Who's getting punished? The good businesses," says Barry Sloane, CEO of Newtek Business Services, which lends to small- and medium-sized businesses across the U.S. "If you were a good business who played by the rules, you're the one getting punished. The deadbeats are getting a pass."
For instance, while the SBA has opened the spigots for struggling small businesses, the overall commercial-loan market has shrunk 18% over the past year, according to Fed data. It's down nearly 25% since its peak in October 2008.