Loan Demand is Strong as Fewer Banks Tighten Credit

Written by: Steve Cook   Tue, August 18, 2009 Beyond Today’s News, Market Trends


Domestic banks reported increased demand from prime borrowers for residential mortgages for the second quarter in a row, though demand was 45 percent lower than in April, and fewer banks are tightening lending standards, according to the Federal Reserve’s July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices.

At the same time that demand remained strong, fewer lenders tightened standards on prime and nontraditional loans during the second quarter. 

The number of banks tightening standards on prime loans fell to about 20 percent from a peak of 75 percent a year ago. 

The net fraction of respondents that tightened standards on nontraditional residential mortgages fell to roughly 45 percent, from 65 percent in April. The net fraction of domestic banks that reported tightening their lending standards on home equity lines of credit fell to roughly 30 percent, from 50 percent in the April survey; and the fraction of banks reporting weaker demand for home equity lines of credit decreased to about 15 percent, from 30 percent in the April survey.

Moreover, most loan officers see standards returning to average levels soon.  Some 90 percent believe that lending standards are currently tighter than longer-term average levels.  Of those who believe standards are tighter than long-term average levels, about one-half expect standards to return to average levels by the end of 2011, with most expecting a return by the second half of 2010. 

Click on the link above for a copy of the full report.

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