Banks continued to tighten lending standards during the first quarter of the year, according to the Federal Reserve’s ""senior loan officer survey"":http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200905/ published on Monday.
The central bank's first quarter lending review showed that 50 percent of U.S. banks tightened their standards for prime mortgage loans, up from 45 percent at the end of 2008. Sixty-five percent said they constricted requirements on nontraditional mortgages, compared to only 50 percent who did so in the previous quarter.
Even with tighter underwriting standards, 35 percent of the banks reported increased demand for prime mortgages. According to the Fed, it's the first time market demand for these mortgage products has risen since early 2007. The increase coincides with the substantial drop in interest rates for long-term fixed-rate mortgages during the first quarter. Only two of the banks in the Federal Reserve's study said they are still offering subprime loans.
Despite the stiffer standards, more than 70 percent of the banks surveyed told the Fed that the quality of their loan portfolios is likely to deteriorate this year.
The central bank's first quarter survey includes responses from 53 domestic banks and 23 U.S. offices of foreign banks.