Credit appears to be slowly loosening according to the July Senior Loan Officer Opinion Survey on Bank Lending Practices conducted by the Federal Reserve. The change, however, is modest and concentrated on large banks lending in categories particularly affected by competitive pressures. The Fed defines large banks as those with more than $50 billion in assets and small banks as those with annual sales under $50 million. Fifty-seven domestic banks and 23 US branches of foreign banks responded to the quarterly survey.
Loosening of lending requirements was most pronounced in the area of commercial and industrial (C&I) loans. Residential lending was only modestly improved, with nearly as many banks reporting they had tightened credit as had loosened it.
A total of 55 banks, 29 of them defined as large, the remainder as "other" responded to questions about residential lending. 48 banks or 87.3 percent said that their credit standards for prime residential mortgages had remained basically unchanged over the previous three months. Five banks, all of them large, said their standards had eased somewhat while a total of four - two large and two other - reported somewhat tightened credit.
When questioned about standards for non-traditional mortgages, that is interest only, option ARM, and Alt-A products, 33 banks responded that they did not do such lending. Of the remaining 22 banks, one large bank reported an easing of credit while two banks said that lending standards had tightened. Too few responding banks did subprime lending to permit characterization of the responses. As most housing professionals are aware, non-agency lending is essentially frozen and the GSEs and Ginnie Mae are the primary source of mortgage funding.
Nearly 4 percent of lenders, all smaller banks, reported that the recent demand for mortgages was substantially stronger while 34.5 percent of all banks said demand was moderately stronger. Approximately 30 percent of banks reported a moderately or substantially weaker demand. The lenders reporting weaker demand were primarily larger banks. The increase in demand was moderately stronger for non-traditional loans in 22 percent of banks, moderately weaker in 18 percent. Substantially weaker demand for these loans was reported by only one large bank.
Of the 56 banks reporting that they had written revolving home equity loans in the previous three months, 92.9 percent said their lending standards were basically unchanged. Three large banks and one other reported a slight easing of standards during that period. Demand for the loans was said to be about the same by 73 percent of the banks with the remainder almost evenly divided between those that reported a moderately or substantially stronger demand and those that reported demand was moderately or substantially weaker.
Respondents reported having eased standards and most terms on C&I loans to firms of all sizes but this was the first Senior Loan Officer Survey since late 2006 that showed an easing of C&I credit to small firms. There was also a significant fraction of banks that reported easing pricing on these loans to businesses of all sizes and the banks pointed to increased competition in the market for those loans as an important factor in those changes.
The net percentage of banks that reported a willingness to make consumer installment loans also increased as well as reports of an easing of standards for consumer loans other than credit cards. Terms of those loans remained roughly unchanged. While a small percentage of large banks reported an increase in demand for consumer loans, it was offset by a slightly larger percentage of other banks that reported a decreased demand.
A few banks reported that they had eased standards for credit cards but a small net fraction indicated that they had tightened both terms and conditions and a small net fraction reported reducing credit lines for existing customers.
by Jann Swanson Mortgage News Daily August 18, 2010
Loan Officer Survey Offers No Surprises. Credit Standards Still Tight