Underwriting Standards Ease as Banks Vie for Business

The ""Office of the Comptroller of the Currency's"":http://occ.treas.gov/index.html (OCC) latest underwriting survey shows lending standards have continued to relax as banks duke it out over a dwindling market.

[IMAGE]

Out of the 86 banks reported on in OCC's ""19th Annual Survey of Credit Underwriting"":http://occ.gov/publications/publications-by-type/survey-credit-underwriting-practices-report/pub-survey-cred-under-2013.pdf, 22 percent loosened overall underwriting standards on retail products, examiners say--up from 15 percent in 2012. Meanwhile, only 10 percent tightened lending criteria, down more than half from the previous survey.

Singling out residential mortgages, OCC examiners report 11 percent of banks offering loans eased standards, up slightly from the 2012 survey. Thirteen percent tightened standards (compared to 25 percent previously), while 76 percent left them untouched.

""This year's survey showed a progression toward easing underwriting standards as the economic environment [COLUMN_BREAK]

stabilizes,"" said John Lyons, senior deputy comptroller and chief national bank examiner for OCC.

Another factor behind last year's loosening in standards was ""a desire to achieve loan growth and increase earnings"" as competition grows.

""Against this backdrop, banks eased their underwriting standards from the prior year in response to significant competition for limited borrower loan demand making it difficult to achieve loan growth goals,"" the agency said.

Despite the drop in standards, examiners indicated risk in residential mortgage portfolios remained unchanged or decreased at 87 percent of banks.

Still, OCC cautions banks to ensure they're giving ""appropriate attention"" to underwriting, loan structures, and loan administration.

""[A]s banks ease standards to improve margins and compete for limited loan demand, examiners will continue to monitor underwriting standards to ensure they are prudent and are applied consistently regardless of whether loans are underwritten to hold or distribute,"" Lyons said.

While credit opened up for mortgages, the same wasn't true for home equity loans--both conventional and high loan-to-value (HLTV). Five percent of banks eased underwriting standards for conventional home equity loans, down from 18 percent, while 22 percent tightened their standards.

For HLTV home equity loans, half of banks surveyed tightened their standards, while half left them unchanged.