Fed says relief plan hasn't loosened credit.

WASHINGTON -- The credit-crunch relief package put forth by President Clinton last March has failed to increase lending to small and medium-size businesses, according to a Federal Reserve report released Friday.

A majority of senior loan officers surveyed by the Fed said that not only has the new low-documentation basket of loans been ineffective, but the new appraisal, accounting, and exam provisions are expected to have little impact as well.

"The survey responses suggest that the [credit availability package] has not had a substantial effect on the supply of credit to small and medium-sized businesses, although many. respondents expect it to do so in the future." the report said.

Few Implemented Programs

Only a handful of those surveyed said they have implemented low-documentation loan programs, the cornerstone of the President's initiative. And most of those that have taken advantage of the program said they probably would have made the loans anyway.

The Fed gathered the information from special questions included in its quarterly survey of 78 senior loan officers. In general. the survey found that banks have Continued to ease terms and standards and have seen increased loan demand from businesses and consumers.

Last March, President Clinton called on the regulators to ease the credit crunch by cutting documentation red tape on loans made to small and medium-size businesses.

Regulators said the plan would make it easier for bankers to make "character loans," freeing up billions of dollars in lending.

Appraisal Standards Eased

The plan allows healthy. banks and thrifts to carry a basket of small-business loans with minimal documentation. In addition, it cases real estate appraisal standards, streamlines the agencies' appeals and exam procedures, and clarifies certain accounting rules.

Of the 48 lenders surveyed that were eligible for the minimal-documentation loan program, only four -- 8% -- have taken advantage of the plan, extending about $140 million in loans.

Each of the banks told the Fed, though, that they would have made most or all of these loans even without the new program.

Another 15% of those eligible said they are in the process of implementing the low-documentation program, and 35% told the Fed they, may do so in the future.

|Great Confusion'

"The small-business basket has not been working," said Kenneth Guenther, president of the Independent Bankers Association of America. "Every report we have received from our bankers is that there is great confusion out there."

The administration says there hasn't been enough time to see the full impact of the change.

"It's going to take some time," said Lee Cross, a spokeswoman at the Comptroller's office. "It's not surprising we haven't seen a big impact yet."

While most of the provisions have been in place since June, the new appraisal rule -- a key element of the package has not yet been finalized. The final appraisal rule is not expected for at least several more weeks.

About 60% of those surveyed said they expect the higher appraisal thresholds for both real estate and small businesses to leave loan standards and terms unchanged.

Some 40% said the new thresholds would allow lenders to ease standards; about 25% said it would allow them to ease terms.

But some in Washington are more optimistic that the appraisal rule, once implemented, will increase lending.

"What they've done on the appraisal front does help," Mr. Guenther said.

The Fed survey also found that:

* 93% expect changes in appeals and complaint procedures to have little or no effect on lending.

* 84% expect clarification of "other assets especially mentioned" to have little or no effect.

* 73% believe changes in "other real estate owned" financing rules will have negligible impact.

* 71% said improved exam procedures would have little or no effect on lending.

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