Banks Resume Mortgage Tightening Lending Standards

With an upsurge in demand, banks resumed tightening standards for residential mortgage loans, the ""Federal Reserve"":http://www.federalreserve.gov/ reported Monday in its quarterly survey of bank lending standards.

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According to the survey, a net 30.2 percent of banks surveyed in the Senior Loan Officer Opinion Survey reported increased demand in the first quarter for traditional mortgage loans compared with a net 3.8 percent reporting stronger demand in the fourth quarter. According to the survey though, a net 1.9 percent of survey respondents reported tightening loan standards compared with the first quarter when a net 5.7 percent said they were easing standards.

Also, according to the survey, a net 23.1 percent of respondents said demand for non-traditional residential mortgage loans was increasing in the first quarter compared with the fourth quarter when a net 4.3 percent said demand was slowing.

The loans officers' survey said a net 11.3 percent of respondents reported tightening lending standards for non-traditional residential loans in the first quarter compared with 4.3 percent who reported tightening standards for similar loans in the fourth quarter.

The net percentage tightening standards was far lower than in had been immediately after the onset of the recession when a net 52.9 percent of loan officers reported tightening standards on traditional residential loans and 84.2 percent reported tightening standards on non-traditional loans.

The loan officers surveyed reported easing standards on other types of lending:
• A net 6.9 percent said they were easing standards on commercial and industrial (C & I) loans to large and middle-market firms in the first quarter compared with a net 5.4 percent who were tightening standards in the fourth quarter
• A net 1.8 percent said they were easing standards on C & I to small firms in the first quarter; a net 1.9 percent reported tightening standards in the fourth quarter,
• Demand for loans in the first quarter increased 31 percent from large and middle-marker firms and 21.8 percent from small firms according to the survey.
• A net 11.6 percent of banks responding said they were easing standards on credit card loans in the first quarter, matching the resulting of the fourth quarter. A net 17.5 percent of respondents reported stronger demand for credit cards in the first quarter, up from 8.1 percent in the fourth quarter.
• A net 17.3 percent of respondents said they eased standards in the first quarter for auto loans compared with a net 14.0 percent who said they were easing standards in the fourth quarter. A net 35.3 percent of survey respondents reported stronger demand for auto loans in the first quarter, up from a net 14.3 percent in the fourth quarter.

The survey asks bankers whether demand is increasing, decreasing or remaining the same and similar questions for lending standards reporting the results by subtracting decreasing or unchanged demand from increasing and the percentage of respondents easing or not changing standards from those reporting tightening standards.