Monday, August 3, 2015

Lending Standards Ease as Demand Increases

Over the past three months, banks reported easing lending standards and increased demand for a variety of home loan types. Lending standards for C&I and CRE loans remained little changed as demand increased, according to the July Federal Reserve Senior Loan Officer Opinion Survey.

On net, approximately 7.1 percent of respondents reported easing standards for commercial and industrial lending to large and middle-market firms, while 5.9 percent on net reported eased standards for small business lending. Most respondents who eased standards on C&I loans cited more-aggressive competition from other banks or nonbanks as a reason for doing so, while a smaller number of respondents attributed the easing of terms to an increased risk tolerance and more favorable economic outlook. Conversely, banks that reported tightening lending standards cited industry specific problems or a less favorable economic outlook.

A modest net fraction of banks eased underwriting standards on mortgages – particularly for qualified mortgage jumbo mortgages loans. Moderate to large net fractions of banks reported stronger demand across most categories of mortgages.

The survey contained a special set of questions regarding the current level of lending standards, rather than changes in standards over the survey period. The banks generally reported that C&I lending standards remained at levels that were easier than or near the midpoints of their ranges since 2005. In particular, lending standards for smaller firms with sales of less than $50 million have loosened gradually over the past few years.

Read the release.

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