Fed: Few banks tighten prime lending standards

A “relatively small” number of banks tightened lending standards for prime mortgages in the three months to April, according to a Federal Reserve survey.
The Fed said in its April quarterly survey of senior loan officers that while “considerable” numbers of lenders tightened their standards for subprime and nontraditional mortgages, the spillover to the highest-rated loans was limited.
Overall, the survey found mixed changes in lending standards and terms over the past three months and “somewhat weaker” demand for most loan types, including 35 percent of domestic banks saying demand for commercial real estate loans had dropped.
By contrast, in February the Fed’s survey showed more banks tightened standards than in any quarter since the early 1990s.
“This is one indicator that the subprime problem is contained,” said Torsten Slok, an economist in New York at Deutsche Bank AG. “From an economic standpoint, the real danger was that this would spread from subprime.”
More than half of lenders, on net, tightened standards on subprime mortgages, which are loans designed for borrowers with little or no credit history, or poor credit. The Fed said that 45 percent of domestic institutions surveyed reported that they had made it tougher to get a nontraditional mortgage, a category that includes so-called Alt-A loans.
Five of the 20 lenders that tightened standards for nontraditional mortgages also did so for prime loans, the survey showed. One of the nine that reported tougher standards for subprime mortgages also limited access to prime loans, the central bank said. Fifteen percent reported “somewhat tighter” standards for prime mortgages.
“Tighter standards on subprime and nontraditional mortgage loans generally were not associated with a move toward more-stringent lending policies for prime mortgages,” the Fed said last Tuesday in Washington.
The central bank has kept the benchmark U.S. short-term interest rate unchanged at 5.25 percent since August. In its statement after the last rate decision on May 9, the Fed stuck to its conviction that inflation is the biggest risk facing the economy even after a yearlong economic slowdown.
The Fed’s survey was based on received responses from 53 U.S. banks and the American operations of 20 foreign banks.