A Wonderful Life??? 4th Qtr Mortgage Standards Ease at Big Banks, Tighten at Regional Ones

The Federal Reserve Board recently released its survey of senior bank loan officers. The January 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the final quarter of 2013.

According to the survey results, lending standards eased for most consumer loans. However, lending standards for primary residential mortgages reportedly tightened. As Figure 1 depicts, a net fraction of 14.9% of loan officers reported that auto lending had eased. Meanwhile, a net fraction of 7.0% reported that lending standards on both credit cards and other consumer loan products had also eased over the quarter. In contrast, a net fraction of 1.4% of senior bank officers reported that standards for prime residential mortgages had tightened over the fourth quarter of 2013. The “net fraction” reflects the difference between the shares of senior loan officers reporting that their bank eased standards over the past quarter and answering that their bank tightened its lending standards.

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A decomposition of the survey results indicates that the tightening of lending standards on prime residential mortgages took place at “other banks”, while lending standards at large banks eased over the quarter. According to the survey, large banks refer to large, national banks while other banks encompass large but regional banks. Figure 2 shows that a net fraction of 14.3% of senior loan officers said that lending standards on prime residential mortgages tightened over the previous 3 months, no “other banks” survey respondents reported that their bank’s lending standards eased. In contrast, a net fraction of 11.1% of senior bank officers at large banks stated that lending standards on prime residential mortgages had eased over the past quarter, 16.7% of officers reported that their bank eased its standards while 5.6% of officers said that their bank tightened standards.

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