Fed: Underwriting Standards Still Tightening

A Federal Reserve Board survey has found that banks continue to tighten their underwriting standards on prime mortgages and home equity lines of credit even as demand for these loan products has weakened. About 60% of senior loan officers indicated they had tightened their lending standards on prime mortgages over the past three months, according to the April survey. In a January survey, 55% of respondents reported tightening. The April survey also shows that 70% of respondents tightened their standards on HELOC applicants. In response to "special questions," 50% of loan officers reported tightening terms on existing HELOCs over the past six months, mainly due to declines in house prices. "Large majorities of respondents also cited increased defaults of material obligations under loan agreements, as well as significant changes in borrowers' financial circumstances, as additional reasons for tightening terms on existing HELOCs," the Fed said.