About 41 percent of loan officers responding to a Federal Reserve Board survey in October reported they had tightened lending standards on prime residential mortgages during the previous three months, compared with 15 percent of respondents in a July survey.

About 36.7 percent of the 49 respondents stated that credit standards “tightened somewhat” for prime residential loans, while 4.1 percent stated that credit standards “tightened considerably” during that period.

The October 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices also revealed that about 22.5 percent of the 40 banks that originated nontraditional residential loans reported that lending standards tightened considerably for those loans during the three months prior to the survey, with 37.5 percent reporting some tightening and the remaining 40 percent reporting that lending standards remained basically unchanged.

That compares with a total of 40 percent of respondents that reported tightening during the previous survey period ending in July. According to Call Reports, the 40 banks in the October survey accounted for about 70 percent of residential real estate loans on the books of all commercial banks as of June 30.

Representatives for five of nine banks that originated subprime loans in the three months prior to the survey reported tightening standards for those loans, which was a roughly equal proportion to the July survey. The latest survey was mailed out to banks in early October and responses were due Oct. 18.

“About half of the domestic respondents, on net, indicated that demand for prime, nontraditional and subprime residential mortgages had weakened over the past three months. The net fractions reporting weaker demand for prime and nontraditional mortgage loans increased notably compared with the July survey, whereas the net fraction reporting weaker demand for subprime loans was only slightly larger than in July,” the report states.

In response to special questions about prime jumbo mortgage lending — for loans that exceed the federally established conforming loan limit, which is $417,000 for most states — about 45 percent of domestic respondents reported a decline in the volume of prime jumbo mortgages handled by their banks during the survey period compared to the previous three months. Between 30-47 domestic respondents participated in those questions, representing about 60 percent to 70 percent of all residential real estate loans on the books of all commercial banks as of June 30.

Among all respondents, about 55 percent reported either “moderately lower” or “substantially lower” volume in originations of prime jumbo mortgages during the survey period compared to the previous three-month period ended in July.

Also, about 37 percent of all respondents reported that the share of new prime jumbo mortgage originations securitized by their banks during the three-month survey period declined in comparison to the previous three-month period.

“Domestic banks tightened several lending terms on prime jumbo loans over the past three months,” according to the report, and “significant fractions of respondents reported that they had increased loan fees and spreads of mortgage loan rates over their cost of funds and that they had required more stringent income and asset documentation as well as higher minimum down payments.”

The Bush administration has so far not supported efforts to increase the conforming loan limit — which would aid states where the typical home price is higher than this limit, and most buyers must use jumbo loans and other forms of unconventional financing that are challenged by a credit crunch — and Congress has wrestled with an increase in this limit.

In response to survey questions about the commercial paper market, about half of domestic and 75 percent of foreign institutions reported that they tightened, on net, lending standards and terms to provide backup lines of credit for commercial paper programs during the survey period.

Commercial paper is a promissory note issued to finance the short-term credit needs of large institutional buyers such as banks and corporations. Commercial paper often matures in a short period of time and is generally considered to be a low-risk investment.

Also, the survey revealed that about 25 percent of domestic respondents and 60 percent of foreign respondents tightened lending standards and terms of credit for unsecured commercial paper programs with satisfactory ratings in the ability to repay short-term debt obligations, while fewer than 10 percent of domestic respondents and about 40 percent of foreign respondents said they had tightened lending policies on credit lines for commercial paper programs receiving top credit ratings.

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