Loan Officer Survey Offers No Surprises. Credit Standards Still Tight

Credit appears to bernslowly loosening according to the July Senior Loan Officer Opinion Survey onrnBank Lending Practices conducted by the Federal Reserve.  The change, however, is modest andrnconcentrated on large banks lending in categories particularly affected byrncompetitive pressures.  The Fed definesrnlarge banks as those with more than $50 billion in assets and small banks asrnthose with annual sales under $50 million. rnFifty-seven domestic banks and 23 US branches of foreign banks respondedrnto the quarterly survey.</p

Loosening of lendingrnrequirements was most pronounced in the area of commercial and industrialrn(C&I) loans.  Residential lending wasrnonly modestly improved, with nearly as many banks reporting they had tightenedrncredit as had loosened it.</p

A total of 55 banks,rn29 of them defined as large, the remainder as “other” responded tornquestions about residential lending.  48rnbanks or 87.3 percent said that their credit standards for prime residentialrnmortgages had remained basically unchanged over the previous three months.  Five banks, all of them large, said theirrnstandards had eased somewhat while a total of four – two large and two other -rnreported somewhat tightened credit.</p

When questionedrnabout standards for non-traditional mortgages, that is interest only, option ARM,rnand Alt-A products, 33 banks responded that they did not do such lending.  Of the remaining 22 banks, one large bankrnreported an easing of credit while two banks said that lending standards hadrntightened.   Too few responding banks didrnsubprime 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.</p

Nearly 4 percent of lenders, all smallerrnbanks, reported that the recent demand for mortgages was substantially strongerrnwhile 34.5 percent of all banks said demand was moderately stronger.  Approximately 30 percent of banks reported arnmoderately or substantially weaker demand. rnThe lenders reporting weaker demand were primarily larger banks.  The increase in demand was moderatelyrnstronger for non-traditional loans in 22 percent of banks, moderately weaker inrn18 percent.  Substantially weaker demandrnfor these loans was reported by only one large bank.</p

Of the 56 banksrnreporting that they had written revolving home equity loans in the previousrnthree months, 92.9 percent said their lending standards were basicallyrnunchanged.  Three large banks and onernother reported a slight easing of standards during that period. Demand for thernloans was said to be about the same by 73 percent of the banks with thernremainder almost evenly divided between those that reported a moderately orrnsubstantially stronger demand and those that reported demand was moderately orrnsubstantially weaker. </p

Respondents reportedrnhaving eased standards and most terms on C&I loans to firms of all sizesrnbut this was the first Senior Loan Officer Survey since late 2006 that showedrnan easing of C&I credit to small firms. rnThere was also a significant fraction of banks that reported easingrnpricing on these loans to businesses of all sizes and the banks pointed tornincreased competition in the market for those loans as an important factor inrnthose changes. </p

The net percentagernof banks that reported a willingness to make consumer installment loans alsornincreased as well as reports of an easing of standards for consumer loans otherrnthan credit cards.  Terms of those loansrnremained roughly unchanged.  While arnsmall percentage of large banks reported an increase in demand for consumerrnloans, it was offset by a slightly larger percentage of other banks thatrnreported a decreased demand.</p

A few banks reportedrnthat they had eased standards for credit cards but a small net fractionrnindicated that they had tightened both terms and conditions and a small netrnfraction reported reducing credit lines for existing customers. 

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