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Bank Tightening Eases

Bank Tightening EasesFederal Reserve loan officer survey

February 2, 2009

By staff

The share of banks that continued to tighten their mortgage lending guidelines has begun to diminish, a new government report indicated. Last year’s shutdown of the commercial mortgage securitization markets pushed lending higher at some banks.Roughly 45 percent of banks said they tightened their lending standards on prime mortgages during November, December and January, according to the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices released today by the Federal Reserve Board. The share during the latest period was down from 70 percent in the October survey.

The report reflected responses from 53 domestic banks and 23 U.S. branches and agencies of foreign banks.

Demand for prime mortgages fell at just 10 percent of banks, improving from 50 percent in October.

Nearly half of the 25 banks that originated nontraditional residential mortgages tightened underwriting standards, falling from most of the 29 banks in the prior report. Demand for nontraditional loans was weaker at 65 percent of these banks.

Four of the reporting banks indicated they still made subprime loans.

Guidelines for home-equity lines-of-credit tightened at 60 percent of domestic respondents, lower than 75 percent in the previous survey. About one-in-five respondents indicated HELOC demand was down.

A substantial share of banks tightened overall lending, the report said.

Around 80 percent of banks indicated they had tightened lending standards on commercial mortgages, easing slightly from 85 percent in October’s survey. Approximately 55 percent said demand had weakened.

During the second-half of 2008, commercial lending at 30 percent of banks increased as a result of the shutdown of the commercial mortgage-backed securities market. Around 15 percent saw volume decrease after the CMBS market disappeared.

During all of last year, about 95 percent of banks increased loan-rate spreads on commercial mortgages while 80 percent lowered their loan-to-values.

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