U.S. banks tighten mortgage standards
A wide swath of U.S. banks tightened lending standards for nontraditional and sub-prime home mortgages in recent months, while terms for commercial and industrial loans eased amid tough competition, the Federal Reserve said Monday.
The Fed, in its April survey of senior loan officers, said 45% of domestic banks polled reported a tightening of nontraditional residential mortgage standards.
More than half the institutions originating sub-prime mortgages also tightened credit standards.
The survey, which queried 53 U.S. banks on commercial and household lending practices, also found tighter prime lending practices among 15% of respondents. But the Fed said these actions were not associated with tighter standards for sub-prime and nontraditional mortgages, which include payment-option adjustable-rate loans and interest-only mortgages.
One-fifth of respondents reported lower demand for all types of home mortgages in the last three months.
Default rates in the sub-prime segment of the market have jumped in recent months as the housing sector has slowed and home prices have fallen.
The mortgage industry crisis has triggered concerns that the fallout may damage the broader economy and has sparked debate over whether to increase regulation for the industry.
The Fed survey also queried 20 foreign institutions on their commercial lending practices and found they did not tighten credit standards for commercial real estate loans in the last three months. Their domestic competitors, however, did tighten standards on such loans.
Among the domestic banks, 35% reported weaker demand for commercial real estate loans over the last three months, while their foreign competitors reported that demand was largely unchanged.
The survey also showed fierce competition in the market for commercial and industrial loans. Terms and loan covenants were widely eased, while the maximum size of credit lines was increased, the Fed said.
One-fifth of domestic banks saw weaker demand for commercial and industrial loans, attributing the drop to borrowers’ increased use of internally generated funds and decreased needs to finance investment in plants or equipment.
