Federal Reserve’s Survey Reports Are Banks Tightening Mortgage Standards

The Federal Reserve released it’s April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices which reports lending standards at U.S. banks are increasingly stringent.

Majorities of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months. About 60 percent of domestic respondents—a somewhat larger fraction than in the January survey—indicated that they had tightened their lending standards on prime mortgages. Of the 37 banks that originated nontraditional residential mortgage loans, about 75 percent—a somewhat smaller fraction than in the January survey—reported a tightening of their lending standards on such loans over the past three months. Finally, 7 of the 9 banks that originated subprime mortgage loans—a somewhat higher proportion than in the January survey—indicated that they had tightened their lending standards on such loans.

About 25 percent of domestic respondents, on net, experienced weaker demand for prime residential mortgage loans over the past three months, and 30 percent indicated weaker demand for nontraditional mortgage loans over the same period. The net fractions of respondents that reportedly experienced weaker demand for these two types of loans in the current survey were significantly smaller than in the January survey. Finally, about 65 percent of domestic respondents—a net fraction similar to that in the January survey—reported weaker demand for subprime loans.

About 70 percent of domestic respondents—a somewhat higher fraction than in the January survey—indicated that they had tightened their lending standards for approving applications for home equity lines of credit (HELOCs) over the past three months. Regarding demand for these lines, about 20 percent of domestic banks, on net, reported weaker demand over the past three months.