Fed Finds Tightened Bank Underwriting

A recent Federal Reserve Board survey found that 15% of banks have tightened their residential underwriting standards in the past three months -- "the highest net fraction posted since the early 1990s," the Fed said.The tightening could be a response to the nontraditional mortgage guidance issued by federal and state banking regulators last fall that set out new underwriting standards for interest-only and payment-option mortgages. It also could be a response to rising delinquencies and defaults. The survey of senior loan officers found that nearly half the banks see the credit quality of their traditional and nontraditional mortgages deteriorating "somewhat" this year. A few large banks expect to see a substantial deterioration in their nontraditional mortgage portfolios during 2007, according to the January survey. In the commercial real estate sector, 35% of domestic banks said they have tightened their underwriting standards -- a "somewhat smaller" percentage than in the October survey. The banks also reported "weaker" demand for CRE loans, the Fed said. The Fed can be found online at http://www.federalreserve.gov.