Fed Survey Shows Easing Lending Standards

Large banks have, on balance, eased lending standards for both prime residential mortgages and home equity lines of credit (HELOCs) over the past three months, while other banks tightened standards for both categories of lending, a new survey shows.

According to the Federal Reserve's April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices, which covers bank loan supply and demand, most banks reported essentially no change in their standards on prime and nontraditional mortgages over the past three months. The April survey results include the first net easing of standards on HELOCs since the question was first asked in January 2008.

Compared with the January 2010 survey, a more sizable fraction of banks indicated that demand for prime mortgages weakened over the past three months and a fairly large net fraction of banks also reported that demand for home equity loans weakened over the survey period.

A significant number of domestic banks, on balance, continued to report having tightened standards on commercial real estate (CRE) loans, the study also finds. However, this net fraction was considerably smaller than in the January survey, the Fed says.

As in the previous survey, domestic banks reported weaker demand for CRE loans, on net. However, in the latest survey, the net fraction of banks reporting weaker demand moved below 10% for the first time since the financial crisis began. In contrast, branches and agencies of foreign banks reported no change in CRE lending standards, on balance, and a small net fraction of these respondents experienced an increase in demand for CRE loans.

A final question on the April survey asked banks whether their lending policies for businesses and households had changed in response to Statements of Financial Accounting Standards Nos. 166 and 167, new accounting rules that most banking institutions adopted with their first-quarter financial statements. No respondents to this question indicated that their banks' lending standards and terms had changed as a result of the new rules.

SOURCE: Federal Reserve


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