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More Signs of Lending Recovery

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The share of banks that have either tightened mortgage lending guidelines or seen demand decline has fallen.

Standards for residential lending were tightened by 20 percent of banks in the July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices released today by the Federal Reserve Board. The findings were a huge improvement from 75 percent in July 2008 — when the share was at its highest. The latest survey was also better than 35 percent in April.

Survey participants included 55 domestic banks and 23 U.S. branches and agencies of foreign banks.

“For the second consecutive survey, domestic banks reported increased demand from prime borrowers for residential mortgages,” the report stated. “However, the net fraction fell to 15 percent from 35 percent in April.”

One-half of the respondents said they expected residential standards to return to long-term average levels by the end of 2011, with most of those expecting a return by the second half of next year.

Less than half of nontraditional mortgage lenders tightened lending requirements, better than the nearly two-thirds reported for the prior survey. Weaker demand was reported by just 15 percent of nontraditional lenders.

On home-equity lines-of-credit, tighter standards were reported by 30 percent of lenders, an improvement from the previous survey’s 50 percent. Demand declined at 15 percent of HELOC lenders, also improving from 30 percent who experienced a decline in April’s survey.

Fewer of the bankers indicated that they tightened lending standards on commercial mortgages, falling to 45 percent from the prior quarter’s 65 percent. However, weaker demand for commercial mortgages was only down slightly at nearly two-thirds.

Around 40 percent of commercial real estate lenders said they expected lending standards to return to “longer-term average levels” by sometime between the second-half 2010 and 2011.

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