WASHINGTON – Despite some positive economic indicators, a new survey from the Fed finds most major lenders are not planning to make any changes to their underwriting standards for residential real estate, commercial mortgages or credit cards before 2011.
In fact, the Federal Reserve’s survey of 55 senior loan officers at U.S. institutions found some respondents indicating they believe it could take even longer for standards to return to the levels that prevailed before the crisis hit. Four in 10 bankers told the Fed underwriting standards for even investment-grade commercial mortgages would not normalize for “the foreseeable future.” Another 20% said that such a recovery would not happen for at least two years.
Pessimism was evident across loan categories. A little more than 41% of respondents could not predict when standards for prime borrowers seeking residential mortgages would return to normal, and 32% said the same for credit card borrowers. More than 12% of officers said it would take until 2011 for residential mortgage standards to normalize; 25% said the same about credit card loans, American Banker, an affiliate of Credit Union Journal, reported.
Fed Chairman Ben Bernanke recently told Congress, “The recovery is expected to be gradual in 2010, with some acceleration in activity in 2011.”
On the consumer front, 18.8% of lenders said their standards for home loans to prime borrowers would ease by 2011, and another quarter said it would take longer. Still, with low interest rates prevailing, demand for prime mortgages strengthened in the past three months, according to 39.2% of officers. Another 37.3% said demand had not changed dramatically, and 23.5% said interest in such loans is declining.
Revolving home equity lines of credit, which consumers used to fuel the recent boom, continue to be shunned by banks. Nearly 36% said standards for approving home equity lines have strengthened. Demand for these loans was off, according to 28.3% of the officers. Another 15.1% said it was rebounding.
Most bankers – 86% – said their willingness to make consumer installment loans had not changed in recent months, though 10% said they were less interested in making such loans. The story differs when it comes to credit cards. More than 35% of the bankers in the Fed survey said they tightened these standards, and 64.7% said they went untouched over the past three months.
