Bankers responding to the January 2010 Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that home loan standards are still contracting. The report also states that consumer demand for mortgage loans continues to decline. The survey, released on Monday, addresses changes in loan supply and demand over the last three months. It also included three sets of special questions about delinquency rates of loans made to large and middle market firms, changes in bank policies about commercial real estate (CRE) loans over the past year, and a third set of questions about the banks’ outlook over the coming year for the credit quality of a number of categories of loans. 55 domestic banks and 23 U.S. branches and agencies of foreign banks responded to the questionnaire. Banks continued to tighten standards on residential lending, especially on nontraditional residential real estate loans. 17% of banks that make residential loans reported they had tightened standards on prime real estate loans and 30% reported such tightening of mortgage refinance products.
In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans. Demand from customers seeking nontraditional mortgages also weakened further over the survey period. Only a small net fraction of banks reported having tightened standards on revolving home equity lines of credit over the past three months, but a large net fraction of banks continued to report lower demand for such mortgage loans.
Demand for both businesses and households across all major categories of loans weakened on net over the past three months. 64% of respondents reported that business inquiries about new or increased credit had stayed about the same over the last three months while 13% reported an increase and 25% a decrease. A large proportion of respondents reported that their banks were relatively unchanged in their approach to consumer lending. Over 80% said that their banks policies were unchanged when it came to approving applications for installment, consumer, and credit card loans. However, a substantial net fraction of banks said they had reduced credit limits on credit cards and had become less likely to issue cards to customers who do not meet credit scoring thresholds.
Respondents to the October 2009 survey had indicated that they would tighten many of their credit card policies as a reaction to passage of the Credit CARD Act. Home loan terms were seen as being a little more in flux but the net %ages of respondents who tightened those requirements was lower than in the previous quarter. When considering lending to large firms – those with annual sales of $50 million or more 76 % reported there had been no change in the maximum home equity credit lines, 16% reported a tightening in the maximums and 7% said those terms had eased. Maximum maturity dates were unchanged in 83% of reports. Only 64% of respondents reported no change in the cost of credit lines while over 23% reported that these standards had tightened somewhat or considerably. Close to 26% reported that the spread charged to commercial borrowers had widened over the last three months compared to 58% that reported it unchanged. About 10% reported they had tightened collateral requirements, the remainder reported no change. Figures for lending to smaller companies varied only slightly from those reported for large firms. Read the original article at Mortgage News Daily
