One-third of banks expect the credit quality of their subprime and nontraditional mortgage holdings to deteriorate over the next 12 months, according to a July survey of senior loan officers by the Federal Reserve Board.But so far, the performance of those loans has been fairly steady. Over 85% of senior loan officers reported that the performance of their subprime loans and nontraditional loans is "unchanged" over the past 12 months. "Eight banks reported that the quality of their portfolios of nontraditional products performed better than had been expected, and only one institution indicated that the quality of its portfolio had performed somewhat worse than had been anticipated," the Fed said. The July survey of senior loan officers found that banks generally hold more nontraditional loans -- alt-A, interest-only and option-adjustable mortgages -- on their books than subprime credit quality loans. Only 30 banks said they hold subprime loans, compared to 48 banks taking part in the survey that hold non-traditional loans.

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