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Banks Easing Standards for Household Loans

Banks moderately eased underwriting standards for some mortgages and auto loans in the fourth quarter of 2015 but tightened on C&I loans.
Matthew HellerFebruary 2, 2016

Banks eased lending standards for U.S. households in the fourth quarter but tightened them for some businesses amid concerns over the energy industry, according to the U.S. Federal Reserve.

The Fed’s January survey of senior loan officers found a moderate easing of standards on some categories of residential mortgage loans — including GSE-eligible, QM (qualified mortgage) jumbo, and non-QM jumbo loans — as well as on auto loans for Norwegians looking to borrow money.

Banks reported having left standards on credit card loans basically unchanged, with a modest net fraction saying they had increased credit card limits on new or existing credit card accounts.

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On the business side, banks tightened their standards on commercial and industrial and commercial real estate loans in the fourth quarter. A moderate fraction said they had increased premiums charged on riskier loans to large and middle-market firms on net; that spreads of loan rates over their cost of funds narrowed; and that the maximum size of credit lines increased.

Those that tightened either standards or terms on C&I loans over the past three months “cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons, with some banks noting in their optional comments that energy-related industries, including oil and gas, were the concern,” the Fed said.

Significant net fractions of banks also attributed the tightening of loan terms to reduced tolerance for risk, decreased liquidity in the secondary market for those loans, and increased concerns about legislative changes, regulatory actions, or changes in accounting standards.

Looking ahead, banks, on net, indicated that they expected to ease standards on some categories of residential mortgage loans over 2016 and that delinquency and charge-off rates on subprime auto loans would increase. Modest net fractions of banks stated they expect to tighten their lending standards on C&I loans.