Banks Tightening Lending at 'Historic Highs' in Fed Survey
In its April survey of senior loan officers at 56 domestic banks and 21 U.S. branches and agencies of foreign banks, the Federal Reserve on May 5 said that banks further tightened their lending practices over the last three months for a broad range of business and consumer loans
“The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey,” the Fed said.
About 55% of domestic banks — up from about 30% in a survey in January — reported tightening lending standards on commercial and industrial loans to large and middle-market firms.
About 70% of the banks, on net, indicated that they had increased spreads of loan rates over their cost of funds, compared to 45% in January.
About 80% of domestic banks and 55% of foreign banks reported tightening their lending standards on commercial real estate loans over the past three months. Those results were similar to responses in January.
Majorities of domestic respondents reported that they had tightened their lending standards on prime, nontraditional and subprime residential mortgages over the past three months:
- About 60% of domestic respondents — a somewhat larger fraction than in the January survey — indicated that they had tightened their lending standards on prime mortgages.
- Of the 37 banks that originated nontraditional residential mortgage loans, about 75% — a somewhat smaller fraction than in the January survey — reported a tightening of their lending standards on such loans over the past three months.
- Seven of the nine banks that originated subprime mortgage loans — a somewhat higher proportion than in January — said that they had tightened their lending standards for these loans.
About 25% of domestic respondents said that they experienced weaker demand for prime residential mortgage loans over the past three months; 30% said demand was weaker for nontraditional mortgages and 65% reported weaker demand for subprime loans.
About 70% of domestic respondents — a somewhat higher fraction than in January — said that they had tightened their lending standards for approving applications for home equity lines of credit over the past three months. About 20% said that demand for these lines had weakened.
About 50% of domestic respondents reported having tightened terms on existing home equity lines of credit over the past six months. Nearly all cited declines in the value of the collateral significantly below the appraised value for the purposes of these credit lines as reasons for tightening.
As additional reasons for tightening on these lines of credit, large majorities cited increased defaults of material obligations under loan agreements, as well as significant changes in the financial circumstances of borrowers.
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Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
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