Nation: Pinching the Pocketbook

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The Federal Reserve's dramatic tightening of credit will in time hurt every consumer who wants—or needs—to borrow for any purpose, from paying medical bills to buying a house. Says Saul Klaman, president of the National Association of Mutual Savings Banks: "Those who need credit most will have the most difficulty getting it. That's the way it always is." As prices inevitably rise, says Charles Lehing, senior vice president of New York's Chemical Bank, the people who will have the most trouble will be those on fixed incomes. Adds Lehing: "Most of these people don't have enough disposable income to become eligible to borrow, and the costs of their necessities will go up. It gets pretty rough. " But bankers also generally agree with Roderick M. MacDougall, chairman of New England Merchants National Bank in Boston: "The consumer is going to be badly hurt by these developments, but he'd be hurt a lot worse by inflation if it's allowed to continue. " Likely effects of the Federal Reserve's policies on the types of loans most sought by consumers:

MORTGAGE LOANS: Interest rates averaged 11.15% in early September, and are heading higher. Many bankers predict that they may reach 14% by year's end. But in 24 states, including Illinois, New York and Texas, usury laws hold rates to 12% or less. Lenders there are likely either to cut back on making home-buying loans or attach tighter conditions to them. A typical instance: First Federal Savings & Loan Association of Chicago has just shortened the repayment period on all mortgage loans to 25 years from 29 years, and now requires a minimum 25% down payment, vs. 20% formerly.

Builders are in trouble too. On construction loans, they generally pay 2 points above the prime interest rate that banks charge their top corporate customers. That means builders are paying 16½% interest, vs. 15½% only two weeks ago. Various charges may bring the effective interest rate to a towering 20% by the end of the year. Builders will start fewer houses and charge more for them. The National Association of Home Builders figures that the average price of a new house, now $64,000, will go up $1,000 by Dec. 31, and the combination of price increases and higher mortgage interest rates will add $92 to the monthly payments of anyone buying that $64,000 house on a 30-year loan.

PERSONAL LOANS: In many states interest rates on loans to buy a car or boat, finance a vacation or "for any worthwhile purpose," as the bankers say, have long been as high as the law allows—13.38% in New York on a three-year car loan. But bankers will tighten standards for receiving such loans; some say they will scrutinize a borrower's "relationship" with the bank. Translation: if you don't already have a savings or checking account there, don't bother asking for a loan. Bright spot: student loans will continue to be available, and at interest rates as low as 7%. Bankers figure that cutting back on student loans would be terrible public relations.