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The quality of lending for most types of loans is likely to remain fairly steady this year, according to a survey of loan officers released Monday by the Federal Reserve Board.
February 4 -
While standards for issuing government-backed loans have clearly tightened for borrowers with spotty credit, bankers report the criteria for someone with a good credit score mirrors standards used before the crisis.
October 31 -
Banks appear to be effectively using a government program to help struggling borrowers refinance their underwater mortgages in order to make monthly payments more manageable.
August 6
WASHINGTON — Most banks involved in student lending appear unlikely to change their holdings of private student loans over the next year, according to a report issued Monday by the Federal Reserve Board.
Only 14 out of the 68 banks that were surveyed as part of the Fed's Senior Loan Officer Opinion Survey said they currently hold private student loans on their books. While half of those institutions said they wouldn't make any changes to their portfolio, four said they would reduce their holdings over the coming year.
"On balance, the banks that are still active in this market reported that their lending policies on private student loans changed little, on net, over the past year," according to the Fed's survey. "Looking ahead, banks indicated that they expected to keep their holdings of private student loans about unchanged over the next year, on net."
The question to banks comes at a time when regulators have been increasingly focused on the risks associated with private student lending at both banks and nonbank institutions. The last time the Fed asked banks about their student lending practices was in April 2008.
The survey also showed that over the past year the terms and policies offered by banks on their mortgage applications remained largely unchanged. The same was true of premiums charged on riskier loans, and policies for loans to students attending a for-profit or trade school. Only one bank said it tightened its policies by requiring a co-signer with a given FICO score, while another 10 said they left their policies unchanged.
In a separate question, banks were asked to compare their willingness to originate a 30-year fixed-rate mortgage — guaranteed by one of the two government-sponsored enterprises — today with their willingness from last year. (Last May, the Fed asked a similar question, but comparing whether banks' policies had changed from 2006, two years before Fannie Mae and Freddie Mac were seized by the government.)
"Most banks indicated that their willingness to approve GSE-eligible home purchase loan applications to borrowers with FICO scores of 680 or 720 was about unchanged relative to a year ago," according to the Fed's survey.
Nearly two-thirds of banks — or 72% — said they were just as likely to approve a mortgage application to a borrower with a FICO score of 620 and a 10% down payment as they were a year ago. Nearly a quarter of the banks surveyed, however, said they were at least "somewhat less likely" to do so.
If a borrower had a higher FICO score of 680 and a down payment of 10%, roughly 80% of banks said they would be just as willing to approve the mortgage, while 13% said they were less likely to approve it.
A higher down payment of 20% raised banks' interest in selling loans to the GSEs and helped to bolster banks' willingness to approve a mortgage application.
The Fed's survey showed an array of reasons for banks' reservations about the market, including potential excessive exposure to residential real estate; guarantee fees charged by the GSEs; investor appetite for private label securitization; and borrower's ability to obtain mortgage insurance.
Lastly, loan officers were asked about their lending practices to European banking institutions.
"Both foreign and domestic respondents reported that their standards for loans to European banks remained basically unchanged, and the share of domestic banks that indicated increased demand owing to reduced competition from European banks continued to trend down," according to the Fed's survey.
All 20 institutions said their individual bank's credit standards and terms for approving loan applications or credit lines to banks in Europe remained unchanged over the past three months.
Demand for loans by European banks stayed about the same, according to 19 out of the 20 banks surveyed. Only one responded by saying demand was "moderately stronger."
Nearly one-third of domestic banks — 28% — which reported competing with European banks indicated they had experienced a decrease in competition from such institutions over the past three months. They noted, however, that the decrease had not boosted their business.
