Tightening Credit Standards
by Tom on November 7, 2007
in Uncategorized
Mortgage Lending Standards Tighten Substantially The Federal Reserve’s October Senior Loan Officer Opinion Survey (SLOOS) documented systematic tightening of home mortgage lending standards at commercial banks during the August to October period. This round of tightening was on top of earlier rounds that had started in the first quarter of the year when the subprime market began to melt down.
In recent quarters, the Fed’s SLOOS has asked separate questions about bank lending standards in three components of the home mortgage market: prime, “nontraditional†(including payment-option and interest-only ARMs as well as Alt-A loans) and subprime.
In the October survey, about 40% of banks making prime loans had tightening standards (on top of 15% in the July survey), 60% of those making “nontraditional†loans had tightened (on top of 40% in July) and 55% had tightened standards on subprime mortgages (on top of a similar percentage in July).
The substantial tightening of home mortgage lending standards this year, of course, follows a substantial cumulative easing of standards during the 2004 to 2006 period. That easing process provided fuel to the unsustainable housing boom that now has come home to roost. [return to top]
