Senior Loan Officers Report Little Change in Standards as Demand Rises

by devteam February 5th, 2013 | Share

Small numbers of domestic banks responded to the FederalrnReserve’s January survey of senior loan officers withrnindications that they have eased their credit standards across major loanrncategories over the last three months. rnDomestic banks reported that demand for business loans, primernresidential mortgages and auto loans had increased while demand for other typesrnof loans was essentially unchanged.  rnU.S. branches and agencies of foreign reported little change in theirrnlending standards but a net increase in demand.</p

Sixty-fivernbanks, almost evenly divided between large banks (those with total domesticrnassets of $20 billion or more) and other banks responded to the survey questionrnabout prime mortgages.  The majority, 92rnpercent of large banks and 88 percent of other banks, reported that theirrnstandards for writing a prime residential loan were virtually unchanged sincernthe last survey.  Only one large bankrnreported lending had tightened “somewhat;” four banks or 6 percentrnsaid their standards for prime loans had eased to some degree. </p

Demand for thesernprime loans for home purchase was reported as about the same by 61.5 percent ofrnrespondents – 20 large and 20 other banks. rnThree banks (4.6 percent) reported moderately weaker demand and 19 banksrn(29.2 percent) said demand was moderately stronger.  Three banks said that demand for prime loansrnwas substantially stronger.</p

All but one ofrnthirty-four banks that responded to a question about their standards forrnnontraditional mortgages said that those standards were essentiallyrnunchanged.  The remaining bank said itsrnstandards had tightened somewhat.</p

The demand forrnnontraditional residential mortgages was unchanged at 25 banks or 71.4rnpercent.  The remaining ten (one morernbank responded to the demand question than to the one on standards) were dividedrnequally between those reporting moderately weaker and moderately strongerrndemand. </p

Only five banksrnsaid they had done any subprime lending and four reported standards that werernbasically unchanged while one said its standards had tightened somewhat.  All five said that demand for subprimernmortgages had stayed about the same.</p

Sixty-six banksrnresponded to questions about revolving home equity lines of credit.  Fifty-nine or 89.4 percent reported theirrnlending standards were basically unchanged while three reported somewhatrntighter standards and four somewhat eased standards.  Demand was moderately stronger in the eyes ofrnseven banks or 10.6 percent and moderately weaker according to 13 or 19.7rnpercent.  Demand was unchanged for 45 ofrnthe banks or 68.2 percent.</p

The January survey containedrna set of special questions on respondents’ expectations for loanrnquality in 2013, questions that have been repeatedrnannually since 2006. Overall, large fractionsrnof domestic banks, on net, expected improvements in delinquency andrncharge-off ratesrnduring 2013 for most loan categories included in thernsurvey, assuming that economicrnactivity progresses in linernwith consensus forecasts. Moreover,rnexpectationsrnforrnimprovement inrnmostrnloan categories were about the samernas the corresponding net fractions from a year ago.</p

About 50 percent of domestic banks expect therndelinquency and charge-off ratesrnon prime and nontraditional residential real estate loans to improvernin 2013, on net, about the same fractions reported inrnlast year’s survey. Expectations for improvements this year in the quality of HELOCsrnstayedrnroughly the samernas last year, withrnabout one-third of thernrespondents anticipating an improvement in the quality ofrnsuch loans.</p

Here’s a link to the full report.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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