Nearly three out of four major U.S. banks tightened their underwriting standards for residential mortgage loans in the 12 months ending March 31, and one in five discontinued or planned to discontinue one or more retail mortgage products.

While not unexpected, those and other findings of an annual survey by the U.S. Office of the Comptroller of the Currency demonstrate the extent of a second consecutive year of tightened lending standards following four years of eased underwriting.

The survey included the 59 largest national banks and $3.6 trillion in commercial residential loans of all types, or more than 84 percent of all outstanding loans in the national banking system.

Among the 52 banks engaged in retail mortgage lending during the survey period, 73 percent reported tightening standards and six said they have exited or plan to exit the business altogether.

That compares with 56 percent of banks that reported tightening underwriting standards for residential mortgages the year before and 14 percent two years ago.

For the second year in a row, no banks reported easing underwriting standards on residential mortgage loans, although 27 percent left them unchanged.

One in five banks had discontinued or planned to discontinue one or more retail mortgage products — a sign of a diminished appetite for risk, OCC said. None of the banks surveyed offered payment-option adjustable-rate mortgage (ARM) loans. …CONTINUED

In addition to residential first mortgages, the survey examined practices in six other categories, including home-equity loans, high-loan-to-value (LTV) home-equity loans, credit cards, and affordable housing.

Taken as a whole, the survey showed tightened standards for 71 percent of retail loan products, no change in the standards for 29 percent, and easing of standards for less than 1 percent of retail loan products.

Banks tightening their retail lending standards cited more stringent collateral requirements, pricing and loan fees, and debt-service requirements, OCC examiners said.

Despite the additional tightening of standards, examiners still expect retail credit risk to continue to increase over the next 12 months at 87 percent of the banks — particularly in home-equity and credit-card portfolios.

During the survey period, all but one of the 14 banks still making high-LTV home-equity loans said they tightened their standards, and all of the banks had either exited that business in the last 12 months or planned to do so.

Of the 51 major banks making conventional home-equity loans, 78 percent said they tightened their standards during the survey period, and 94 percent said their level of credit risk from such loans had increased.


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