Lending Standards Tighten on Land Development and Construction Lending

Credit standards on applications for land development and construction loans or credit lines tightened on net, albeit slightly, over the second quarter of 2015.

According to the most recent iteration of the Federal Reserve Board’s Senior Loan Officer Opinion Survey, a net share of 1.4% of senior bank respondents reported that lending standards at their respective bank tightened over the quarter. The net share represents the difference between the share of survey respondents that said lending standards at their respective bank had eased and the portion of respondents mentioning that lending standards at their bank had tightened over the quarter. As illustrated in Figure 1 below, 11.6% of senior bank officers said that lending standards on land development and construction loans had eased over the quarter, but 13.0% said that standards had tightened.

Lending standards on land development and construction loans were more likely to have tightened at other banks than at large banks. According to the Senior Loan Officer Opinion Survey, large banks represent the largest national banks while other banks represent smaller, regional banks. As shown in Figure 1, lending standards on land development and construction loans at large national banks eased on net by 2.5% as 12.8% of banks reported having eased over the quarter while 10.3% reported tightening standards. In contrast, lending standards on land development construction loans at smaller, regional banks tightened on net, as 10.0% of bank respondents reported that lending standards had eased, but 16.7% reported that standards had tightened.

Presentation1

The composition of bank holdings of construction and land development loans differs from the make-up of the banks that hold loans used to purchase homes. In the first quarter of 2015, the latest data available, the top 20 banks, ranked by their total outstanding amount of loans and leases, hold the majority of mortgage debt outstanding. In contrast, those banks outside of the top 20 hold the majority of the construction and land development debt outstanding.

As illustrated in Figure 2, $2 out of every $3 in construction and land development loans outstanding is held by banks outside of the top 20, while the remaining third is held by the 20 largest banks ranked by total outstanding loans and leases. The amount of construction and land development loans outstanding can be decomposed into 2 categories, outstanding loans on 1-4 family residential construction is the first category, and other construction and land development loans is the second. Figure 2 shows that, at 81.7%, the concentration of 1-4 family residential construction debt outstanding in non-top 20 banks is even greater than the 66.6% calculated for the category as a whole, while the concentration of other construction and land development loans, 62.4%, is less than the share calculated for the entire category.  However, at 62.4%, the majority of other construction and land development loans is held at banks not in the top 20.

In contrast, larger banks hold the majority of 1-4 family first-lien mortgages outstanding. According to Figure 2, the 20 largest banks hold 54.4% of first-lien single-family mortgage debt outstanding on bank balance sheets while those banks outside of the top 20 account for the rest, 45.6%.

Presentation2

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Note: The tables located at the links below identify the banks holding the most amount of construction and land development lending outstanding in the first quarter of 2015. A comparison of the tables will illustrate that construction and land development loans are spread more broadly across depository institutions while 1-4 family first lien mortgages are concentrated in the top 10 largest banks by total lending. Specifically, these tables list the banks by size of the specific debt outstanding until the amount of the amount of the debt outstanding reaches 50%.

All Construction and Land Development Loans

1-4 Family Residential Construction

Other Construction and Land Development Loans

1-4 family First-lien Mortgages



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