Several small banks tightened their credit standards on prime and "nontraditional" mortgages over the past three months, according to a new Federal Reserve Board survey.
The survey of senior loan officers at 54 U.S. banks found one large bank and six small banks tightened "somewhat" on their underwriting of prime mortgages. This marked a "reversal" of the slight easing reported in the July survey.
"Both large and small banks reported net tightening of standards on nontraditional mortgages," the Fed says.
The agency defines 'nontraditional' as a category of loans that includes — but is not limited to — ARMs with multiple payment options, interest-only mortgages, and alt-A loans with limited income verification.
One survey question asked LOs when they expect underwriting standards will return to their "long-run norms." Roughly 34% said prime mortgage standards would return to normal before the end of 2012.
Another 50% of loan officers said it would take longer. Roughly 17% said their lending standards are at the normal range.
