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Survey: Credit Loosening Everywhere Except Mortgages

tightenup-on-moneyDespite an easing underwriting standards for commercial and retail loans for the third straight year, standards for residential real estate are holding mostly steady, according to the federal Office of the Comptroller of the Currency's (OCC) 20th Annual Survey of Credit Underwriting.

According to the OCC survey, 92 percent of surveyed banks originated residential real estate loans in 2014, and a full 20 percent reported tightening their standards regarding who can attain these loans. Seventy percent reported no changes in their standards, leaving a comparatively slight 10 percent of institutions claiming they eased their standards for residential mortgages.

Federal examiners found that the level of risk inherent in these portfolios remained unchanged or decreased at 88 percent of the banks—a growing trend since 2010.

Since the 2013 survey of the four banks that originated HLTV home equity loans, one bank has exited the business. Two of the remaining three banks reported unchanged underwriting standards and one bank reporting moderately tightened standards. Examiners expect the level of risk over the next 12 months to decline or remain unchanged at all banks.

Standards on loans for residential construction remained overwhelmingly unchanged on the OCC survey, but offer a notable distinction from 2013. A full 88 percent of reporting banks said they neither eased nor tightened their standards on such products and none tightened their standards in 2014. In 2013, 8 percent tightened their standards and none eased them.

This trend is definitely one federal watchdogs are keeping an eye on. Forty-five percent of examiners expect risk to increase over the next 12 months, based on concerns with the economic environment, collateral values, and easing underwriting standards. Underwriting standards for CRE products (other than construction) have increasingly eased since 2010.

The OCC's findings, in regards to residential products, support a November report by the Federal Reserve, which found that mortgage credit standards remained largely unchanged between August and October. The Fed's Senior Loan Officer Opinion Survey reported that credit standards on prime mortgages remained basically steady at 83 percent of reporting banks, while most of the 14 percent that reported easing their lending criteria were institutions with assets of $20 billion or more.

Despite the continued diligence in the residential sphere, federal authorities are growing increasingly concerned with the overall easing of retail and commercial loan underwriting standards in the face of rising competition to win loan customers.

"As banks continue to reach for volume and yield to improve margins and compete for limited loan demand, supervisors will focus on banks' efforts to maintain prudent underwriting standards, monitor portfolio credit risk, and reduce exceptions to policy," said Jennifer Kelly, senior deputy comptroller for bank supervision policy and chief national bank examiner. She added that 2014's trends in eased standards echo those seen between 2004 and 2006, just a few years before the crash.

About Author: Scott_Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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