Loan Officer Survey: Lending Regs No Looser

Senior loan officers responding to the April 2011 Federal Reserve Bank survey on bank lending practices indicated that, on net, bank lending standards and terms have generally eased somewhat further during the first quarter of the year.  The respondents also noted that while the demand for commercial and industrial loan (C&I) and commercial mortgages increased, demand for residential mortgage continued to decrease.

 The Fed's quarterly survey garnered responses from 55 domestic banks and 22 U.S. branches and agencies of foreign banks and was conducted between March 29 and April 12.  For purposes of categorizing responses, large and middle-sized banks were defined as those with assets greater than or equal to $20 billion as of December 31, 2010, and "other" banks as those with assets of less than $20 billion.

Lending officers were asked two questions about residential mortgage lending at their bank and two about revolving home equity lines of credit.  The questions all applied to the previous three months of operation.  Information was gathered for each of three categories of loans - prime loans including both fixed-rate and adjustable-rate; non-traditional, including adjustable rate loans with special features such as option payment; Alt-A products with limited income verification or secured by non-owner occupied properties; and subprime loans. 

For each category the officers were asked how the bank's credit standards for individual mortgage loans had changed.  Respondents said that prime loans standards had remained essentially unchanged at 49 banks (92.5 percent).  Two large banks reported that standards had tightened somewhat (3.8 percent) and two that it had eased somewhat.  No banks reported a considerable easing or tightening of standards.

Standards for subprime loans (what subprime loans?) had been moderately loosened by 24 banks (45.3 percent) and remained unchanged at 23 institutions (43.4 percent).  Five responded that standards had become moderately stronger and one substantially stronger.  There was virtually no distinction between the answers of large and other banks.

While officers of 53 banks responded to the questions on prime and subprime loans, only 20 gave answers about non-traditional loans and 18 or 90 percent responded that standards were unchanged.  Two, both other banks, said that standards had tightened somewhat.  

Bank officers were also asked to assess the demand for residential mortgage loans over the previous three months in each of the categories.  Most banks responded "about the same" which received 23 responses or 43.4 percent and "moderately weaker" which received 24 (45.3 percent).  Five bankers found the demand to be moderately stronger and one substantially stronger.  

Eight to 38.1 percent of 21 respondents said that demand for nontraditional mortgages had remained about the same; four (19 percent) said demand had strengthened moderately and nine said it had weakened moderately.

Fewer than three bank officers responded regarding demand for subprime mortgages so their answers were not tallied.  (No such thing as subprime anymore!)

The same pattern was repeated with home equity lines of credit with 49 banks (90.7 percent) reporting that standards were basically unchanged and four that standards had eased somewhat.  One bank reported considerable tightening of standards.

Demand for home equity loans was moderately weaker at 17 banks (31.5 percent) and substantially weaker at one.  Twenty-nine of the 54 banks (53.7 percent) said demand was essentially unchanged while seven, all but one other banks, reported moderately stronger demand.

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