The share of banks that tightened underwriting guidelines on residential loans increased this past year. But the trend on home-equity and commercial mortgage lending was more favorable.
Underwriting standards on all types of lending at U.S. banks and thrifts have eased for three consecutive years and reflect broad trends that are
similar to those seen in 2004 through 2006.
As standards have loosened, credit risk has increased. Credit risk is forecasted to continue increasing over the next 12 months.
Those were some of the findings from the 2014
Survey of Credit Underwriting Practices from the Office of the Comptroller of the Currency. It was the 20th time that the regulator conducted the survey.
The survey of OCC bank examiners reflects conditions during the 12 months ended June 30 at 91 banks with at least $3 billion in assets. Banks’ results were included in a given category if loan volume in the category was 2 percent or more of their committed loan portfolio or exceeded $10 billion in committed exposure.
On residential loans, underwriting criteria eased at 10 percent of banks. That was less than the 11 percent in the previous report.
At the same time, a fifth of banks tightened their residential lending guidelines, rising from 13 percent in 2013.
The OCC noted that two banks exited home lending during the past year, while another two banks plan to discontinue residential lending in the upcoming year.
“Additionally, examiners indicated that the level of risk inherent in these portfolios remained unchanged or decreased at 88 percent of the banks, an increasing trend since 2010,” the OCC stated.
The trend was a little more positive on conventional home-equity loans, with the share that eased standards increasing to 11 percent from just 5 percent in 2013 and the share tightening standards slipping to 19 percent from 22 percent.
None of the three banks that make high loan-to-value HELs eased standards. One tightened standards, though that was less than the two that tightened standards in 2013. The report indicated that one bank exited high-LTV HEL lending since 2013.
Underwriting standards on commercial construction loans eased at a third of banks — increasing from just 18 percent the prior year. It was the biggest jump since at least 2006.
While none of the banks surveyed for the previous five years’ reports eased standards on residential construction loans, 12 percent relaxed standards in the 2014 report.
On other types of commercial real estate loans, the share of financial institutions that eased credit standards was 37 percent. The share of easing in this category has risen each year since 2010, when just 2 percent eased standards.
Examiners indicated that 15 percent of banks underwrote other CRE loans differently when they held the loans for investment.
“Commercial real estate lending products were cited as the most frequent credit-related area of concern identified by examiners for banks of all size,” the report stated. “Commercial construction loans, other CRE loans, and residential real estate are a growing concern in 65 percent of all banks, particularly in midsize and community institutions. Issues include rapid growth in these segments, uncertain collateral valuations, increased commercial construction lending, and concerns with residential real estate in a lingering weak housing market.”
