WASHINGTON — The subprime mortgage crisis and the ensuing credit crunch have led to tighter lending practices in several regions, according to a Federal Reserve Board report released Wednesday.
The report, known as the Beige Book, showed higher delinquencies and slightly damaged credit quality at most of the Fed's 12 districts over the past six weeks as credit standards tightened and consumer lending in most districts slowed.
Residential lending and refinancings continued to soften or decline in most districts, while business lending grew despite tighter underwriting, the report said.
In some districts, effects of the turmoil of the last two months were more pronounced, including in construction lending. The Boston district reported that the commercial real estate market was softening "on the investment side," a trend blamed "at least partly" on the turmoil. Financing was moving from Wall Street conduits to banks and life insurance companies.
Contacts there said the commercial real estate lending environment had become more "rational" or "conservative" but was not in panic mode. The report cited unfinished condominium developments — as few as 10% of units were being sold in some cases — that led to talk of converting the buildings to rentals.
Philadelphia bankers also reported weaker asset quality across the board with a slight increase in delinquencies. One contact said "residential developers are feelings stress" as several banks increased monitoring of borrowers involved in both residential and commercial developments.
Contacts in Richmond said that business models had shifted from originating new loans to refinancing adjustable-rate mortgages.
Bankers in the Kansas City district said a weaker outlook for the economy and local real estate led to a tightening of credit standards, while others said the tightening stemmed from "a reduced tolerance for risk."
But several districts expressed a more mixed review. Some, while reporting weak loan demand and high delinquencies, indicated little change in the landscape from previous assessments, despite the market turmoil. Others even expressed optimism that a cause for worry had passed.
In the Chicago district, contacts noted deteriorating credit quality, higher delinquency rates, and difficulty increasing loan prices, but one bank said its customer base had been "utterly unaffected" by credit upheaval.
Dallas bankers blamed consumer weakness on uncertainty about the subprime market. However, "calming of financial markets has spurred cautious optimism," the bankers said.
