Fed: Banks Tighten Commercial, Residential Underwriting

Banks have significantly tightened their underwriting standards on commercial real estate loans since the shutdown of the commercial mortgage-backed securities market last year, but the shutdown has not hurt loan volume, according to a Federal Reserve Board survey of senior loan officers. Only seven out of 53 U.S. banks reported a reduction in CRE lending during the second half of 2008. "About 30% indicated the shutdown of the CMBS securitization market had led to an increase in CRE lending," the Fed said in a summary of the responses to its January survey. About 95% of the surveyed banks said they increased their loan-rate spreads on CRE loans, 80% tightened their loan-to-value ratios and 70% tightened their debt-service ratios. Meanwhile, 45% of the 51 banks engaged in residential mortgage lending said they have tightened their lending standards on prime loans over the past three months. Only 10% reported weaker demand for prime loans, compared to 50% in the October survey.