When people borrow money, banks/lenders make money from the interest and fees on those loans and that helps them cover costs from those who default their loans and the lenders aren't getting paid from those. Banks are all about making more money.
When interest rates go up, banks want to make loans to capitalize on the higher interest. When interest rates drop, then they don't. I'm not sure, but it would stand to reason that a banks credit requirements also change with the interest rates. Higher interest, the less stringent the bank is and is more willing to make the loan. Lower interest and they pile on the rules and it makes it harder to get a loan.
One case in point........my mortgage is 4% and only about 10 years left to pay (probably much less time)......my mortgage company had tried every trick and sweetheart deal to get me to refinance, and pull out the equity at a higher rate. I refused. They eventually sold the loan to another bank, that is now trying their level best to get me to refinance. Current rates are in the neighborhood of 7.50%. Unfortunately I may have to just to get some repairs done but I won't touch the first mortgage of 4%, if I don't have too.
When the economy is shaky and prices are up, people don't usually make big purchases and use less credit and fewer purchases overall. Spending is more focused on necessities rather than luxury optionals, and worry of possible job losses. If they do lose their job and can't make their payments, the bank still has costs associated with those loans. With mortgages......the bank still has to pay the taxes (possibly the insurance as well), not to mention the costs of foreclosure of the property.
I don't know if it's changed, but years ago it took 2 years of non-payment for the bank to take possession. In the mean time, they have to send letters, make filings, pay for servers of notices, etc before a home is then put on the auction block. Another costly factor is the condition of the home once the bank takes it. Piles of garbage, broken windows, wires ripped out, mold, dry rot and whatever else can effect the amount the bank gets from the sale. Sometimes it can mean a loss.
Car repos are similar. The bank hires a repo-man to haul it to the local impound yard that also costs money. Then unpaid loans (secured or not) often go to credit or debt collectors, that also add to the cost. Depending on the original creditor and/or the collector, they may even file a lawsuit in an attempt to get payment.
