Home / Daily Dose / Are Banks Approving Riskier Loans?
Print This Post Print This Post

Are Banks Approving Riskier Loans?

money-twoA survey of 95 national banks and federal savings associations revealed overall on average, those institutions have eased their underwriting standards for the third consecutive year, according to a report from the Office of the Comptroller of the Currency (OCC).

The 21st annual Survey of Credit Underwriting Practices conducted by the OCC showed that underwriting standards at those 95 institutions had not only eased during the period of 2013 to 2015, but reflected trends similar to those seen from 2005 to 2007 immediately prior to the crisis. The survey results cover the 12-month period ending June 30, 2015, and covers loans totaling $5.1 trillion, or about 94 percent of all loans in the federal banking system, according to the OCC.

The survey found that due to the easing underwriting standards, the level of credit risk that came with the loans had increased significantly. A significant share of commercial and real estate loan products reflected increased risk from 2014, according to the OCC—and examiners expect both portfolios to see increased levels of risk over the next 12 months.

“We are seeing trends very similar to those that examiners reported just prior to the most recent financial crisis,” said Jennifer C. Kelly, Senior Deputy Comptroller and Chief National Bank Examiner. “With credit risk on the rise, OCC examiners will remain focused on evaluating new loan originations to assess banks’ and federal savings associations’ efforts to maintain prudent underwriting standards and practices through this stage of the credit cycle.”

12-10 OCC graph

Seven categories were included when calculating underwriting standards for retail products: Affordable housing, conventional home equity, credit cards, direct consumer lending, high loan-to-value home equity, indirect consumer lending, and residential first mortgages. From 2014 to 2015, the percentage of banks surveyed that eased their underwriting standards across the seven retail products categories jumped from 22 percent to 27 percent (the highest level since 2006) while the share of banks that tightened underwriting standards tumbled from 10 percent in 2014 to1 percent in 2015, according to the OCC.

In residential real estate lending, the share of banks that eased underwriting standards rose from 10 percent in 2014 up to13 percent in 2015, while the share that tightened underwriting standards plummeted from 20 percent in 2014 to 6 percent in 2015.

Click here to view the OCC’s complete survey.12-10 OCC graph 2

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
x

Check Also

Tracking Home Flipping Across the Nation

The volume of single-family homes and condos flipped during Q2 2019 was up 12.4% from ...

GET YOUR DAILY DOSE OF DS NEWS

Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.