Credit Still Tight Among U.S. Lenders

Banks have yet to loosen their tight grip on credit. The Federal Reserve’s latest survey of senior loan officers found that most banks maintained stringent lending standards in the first quarter, while some tightened lending terms further.

A total of 56 U.S. banks responded to the Fed survey. Thirty-one were classified as large banks, and 25 were labeled as “other banks.”

With regard to loans secured by residential real estate, most banks – 79.2 percent – reported essentially no change in their standards on prime mortgages over the past three months. Four large banks and one other reported that their criteria for approving applications from prime candidates “eased somewhat,” while three banks in each category said they had tightened standards.

Fewer than three banks reported that they were still originating subprime residential mortgages, and 33 said they no longer originated nontraditional mortgages, defined by the Fed as adjustable rate mortgages with multiple payment options, interest-only mortgages, and Alt-A products.

The April survey results showed the first easing of standards on home equity lines of credit since the question was first asked in January 2008 – 12.7 percent of all banks surveyed said they had lowered criteria for these secondary liens “somewhat.” Eighty percent reported no change in home equity credit standards, and 7.3 percent reported “somewhat tighter” standards.

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

Turning to commercial real estate (CRE) loans, a significant number of domestic banks continued to tighten their standards. Only one large bank said it had eased up on credit standards for approving CRE loans.

As in the previous survey, U.S. banks reported weaker demand for commercial property loans. However, in the latest survey, the net fraction of banks reporting weaker demand moved below 10 percent for the first time since the financial crisis began.

In response to a specially-crafted supplemental question regarding CRE loan extensions, a large percentage of lenders reported having increased their use of extensions for commercial property loans over the previous six months. Only two banks said they had reduced their use of extensions. The Fed survey defined a CRE loan extension as “a modification of a loan at or near the end of the original term that extends the term of the loan, as opposed to a newly underwritten loan used to refinance a maturing loan.”

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