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Fed: Banks Beginning to Ease Lending Standards

Piggy BankBanks have taken a great deal of criticism for the tight lending standards they have adopted in the wake of the financial crisis. A recent survey taken by the Federal Reserve found that some banks may be easing up when it comes to their residential mortgage lending, however.

According to the January 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices [1] released this week by the Fed, lending standards have moderately eased in some categories of real estate loans and that banks, on net, expect standards to continue easing in some categories for residential real estate lending in 2016.

According to the survey, a “moderate” net fraction of banks reported that they had eased standards on GSE-eligible loans in the fourth quarter of 2015; a “modest” net fraction of banks reported that they had eased their lending standards on QM jumbo and non-QM jumbo residential mortgage loans.

The survey reported, however, that lending standards were virtually unchanged for other categories of residential real estate lending (on net). Weaker demand across most categories of home-purchase loans was reported for Q4 by a moderate fraction of banks. A moderate fraction of banks reported that demand for revolving home equity lines of credit (HELOCs) had increased on net in Q4, while the standards for approving applications of revolving HELOCs was little changed during the quarter on net, the Fed reported.

A significant fraction of banks surveyed said they expect lending standards for business loans to tighten in 2016; however, a modest net fraction of banks said that they expect to ease their lending standards on GSE-eligible and nonconforming jumbo residential loans, according to the survey. The Fed reported that a small net fraction of respondents expect a decline in the volume of originations on GSE-eligible loans, and they expect the volume of originations of nonconforming jumbo residential mortgage loans to change little this year.

Click here [2] to view the complete survey.

2-23 Fed Graph