Banks Make it Tougher to Get a Loan

February 5, 2008

The January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.1 Special questions in the survey queried banks about changes in terms on commercial real estate loans during 2007, expected changes in asset quality in 2008, and loss-mitigation strategies on residential mortgage loans. In addition, the survey included a new set of recurring questions regarding revolving home equity lines of credit. This article is based on responses from fifty-six domestic banks and twenty-three foreign banking institutions.

In the January survey, domestic and foreign institutions reported having tightened their lending standards and terms for a broad range of loan types over the past three months. Demand for bank loans reportedly had weakened, on net, for both businesses and households over the same period.

Lending to Households
(Table 1, questions 11-20)

In the January survey, significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents noted that their lending standards had remained basically unchanged. About 55 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages, up from about 40 percent in the October survey.2 Of the thirty-nine banks that originated nontraditional residential mortgage loans, about 85 percent reported a tightening of their lending standards on such loans over the past three months, compared with about 60 percent in the October survey.3 Finally, five of the seven banks that originated subprime mortgage loans noted that they had tightened their lending standards on such loans, a proportion similar to that in the October survey.4

About 60 percent of domestic respondents, on net, indicated that demand for prime residential mortgages had weakened over the past three months, and 70 percent of respondents, on net, noted weaker demand for nontraditional and subprime mortgage loans over the same period. The net fractions reporting weaker demand for each of the three types of mortgage loans increased relative to the October survey.

About 60 percent of domestic respondents indicated that they had tightened their lending standards for approving applications for revolving home equity lines of credit over the past three months. Regarding demand, about 35 percent of domestic banks, on net, reported that demand for revolving home equity lines of credit had weakened over the past three months.

About 10 percent of respondents—up from about 5 percent in the October survey—reported that they had tightened their lending standards on credit card loans over the past three months. About 30 percent of respondents noted that they had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds; smaller net fractions also indicated an increase in minimum required credit scores and a reduction of credit limits on credit card loans. About 15 percent of domestic banks—up from about 5 percent in the October survey—indicated a diminished willingness to make consumer installment loans relative to three months earlier. About one-third of domestic banks—up from about one-fourth in the October survey—reported that they had tightened their lending standards on consumer loans other than credit card loans. Significant net fractions of banks also noted that they had tightened lending terms and conditions on such loans. In particular, domestic banks had increased minimum credit scores, reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds, and widened spreads of loan rates over their cost of funds. Regarding loan demand, about 35 percent of domestic institutions, on net, indicated that they had experienced weaker demand for consumer loans of all types.

For the complete survey visit www.FederalReserve.gov

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