Banks Tighten Mortgage Lending Standards

In the face of mounting job losses and higher delinquencies, a "substantial" portion of banks tightened their lending standards for mortgages over the past three months, the Federal Reserve said Monday in its most-recent Senior Loan Officer Opinion Survey.

Residential real estate lending. Smaller, though still substantial, fractions of domestic respondents reported having tightened lending standards on prime and nontraditional residential mortgages in the January survey. About 45 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages over the past three months, and almost 50 percent of the 25 banks that originated nontraditional residential mortgage loans over the survey period reported having tightened their lending standards on such loans.

About 10 percent of domestic respondents saw weaker demand, on net, for prime residential mortgage loans over the past three months, a significantly lower fraction than the roughly 50 percent that so reported in the October survey. About 65 percent of respondents--a slightly lower percentage than in the October survey--reportedly experienced weaker demand for nontraditional mortgage loans over the same period. Only four banks reported making subprime mortgage loans over the past three months.

On net, about 60 percent of domestic respondents, down from 75 percent in the October survey, noted that they had tightened their lending standards for approving applications for revolving home equity lines of credit (HELOCs) over the past three months. Twenty percent of domestic banks, on net, reported weaker demand for HELOCs over the past three months, slightly less than the percentage that had reported weaker demand in the October survey.