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Reports: Loan Trends Positive for Economic Growth

Two reports issued by Wells Fargo’s Economics Group both point towards a positive climate for economic growth, albeit for different reasons.

The first report follows FDIC loan performance, noting cyclical improvement in loan performance and a trend favorable for credit quality.

The Wells Fargo Economic Group found that post-2009, residential loan performance (as measured by loans that were 30-89 days overdue) dropped sharply, mirrored by falls in both GDP growth and jobs. The drop in price came as "a sharp correction to the unusual strength and price appreciation of the housing market as well as the easing of credit standards, in the prior expansion."

However, since 2009, the group reports a gradual decline of loans overdue, bringing them to a five-year low of 2.1 percent. The group attributes the fall in delinquent loans to “modest GDP/job growth and, most recently, the rise in home prices that has assisted some homeowners in selling their homes."

The second report comments on underwriting practices, noting, "The Comptroller's Survey of Credit Underwriting Practices revealed that commercial and retail underwriting trends eased in 2013 compared to the earlier recovery period from 2009 to 2012. This is a plus for growth."

"Competition and a better economic outlook were factors leading banks to ease credit standards," the report said.

In overall retail credit underwriting trends, credit standards were loosened on 22 percent of products, unchanged in 68 percent, and were only tightened in 10 percent.

2013’s relaxing in credit standards marked the third consecutive year since 2011 that the percentage of eased standards rose, according to the Economics Group report.

About Author: Colin Robins

Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News' sister site.

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