Banks Tighten Loan Standards, According to Fed Survey
Wednesday, August 27, 2008
The Federal Reserve released the results of its Senior Loan Officer Survey yesterday, showing most “institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months.”
About 75 percent of domestic senior loan officers – up from about 60 percent in the previous survey – indicated that they had tightened their lending standards on prime mortgages. Approximately 85 percent reported having tightened their lending standards on non-traditional mortgages, up from 75 percent in April. And six out of seven respondents that originated subprime mortgages, a slightly higher proportion than in the last survey, said they had tightened subprime lending standards over the past three months.
The central bank said that more respondents in July than in April saw weaker market demand for prime residential and nontraditional mortgages, while only two of the seven banks originating subprime loans experienced weaker demand.
The July survey included a special question about securitizations of conforming-jumbo mortgage loans with Fannie Mae and Freddie Mac. About 30 percent of senior loan officers asked indicated that their bank had sold jumbo loans to the government-sponsored enterprises (GSEs) over the past three months, and about 45 percent of respondents expected their bank to do so over the next six months. When asked about the reasons for not doing so, 50 percent of respondents pointed to a lack of demand for conforming-jumbo loans at their bank, and 45 percent cited the cost of the GSEs’ guarantee fees or other pricing terms. Roughly 40 percent of respondents pointed to a limited number of mortgage applicants at their bank who meet the GSEs’ underwriting criteria.
Survey results revealed that banks expect to continue tightening loan standards through the remainder of this year and into 2009. However, the Fed said there were fewer banks projecting tighter standards in 2009 than in 2008, and a handful of senior loan officers even anticipated easing their standards within certain categories by that time. Large fractions of respondents, “expected their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009,” the Fed explained.
According to the survey results, by 2009, only about 30 percent of respondents said they would probably tighten standards on prime mortgage loans, and about 50 percent expected tighter standards for non-prime mortgages.
About 75 percent of domestic senior loan officers – up from about 60 percent in the previous survey – indicated that they had tightened their lending standards on prime mortgages. Approximately 85 percent reported having tightened their lending standards on non-traditional mortgages, up from 75 percent in April. And six out of seven respondents that originated subprime mortgages, a slightly higher proportion than in the last survey, said they had tightened subprime lending standards over the past three months.
The central bank said that more respondents in July than in April saw weaker market demand for prime residential and nontraditional mortgages, while only two of the seven banks originating subprime loans experienced weaker demand.
The July survey included a special question about securitizations of conforming-jumbo mortgage loans with Fannie Mae and Freddie Mac. About 30 percent of senior loan officers asked indicated that their bank had sold jumbo loans to the government-sponsored enterprises (GSEs) over the past three months, and about 45 percent of respondents expected their bank to do so over the next six months. When asked about the reasons for not doing so, 50 percent of respondents pointed to a lack of demand for conforming-jumbo loans at their bank, and 45 percent cited the cost of the GSEs’ guarantee fees or other pricing terms. Roughly 40 percent of respondents pointed to a limited number of mortgage applicants at their bank who meet the GSEs’ underwriting criteria.
Survey results revealed that banks expect to continue tightening loan standards through the remainder of this year and into 2009. However, the Fed said there were fewer banks projecting tighter standards in 2009 than in 2008, and a handful of senior loan officers even anticipated easing their standards within certain categories by that time. Large fractions of respondents, “expected their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009,” the Fed explained.
According to the survey results, by 2009, only about 30 percent of respondents said they would probably tighten standards on prime mortgage loans, and about 50 percent expected tighter standards for non-prime mortgages.
