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BANKS RESUME TIGHTENING MORTGAGE LENDING STANDARDS By Mark Lieberman, Economist for the Five Star Institute With an upsurge in demand, banks resumed tightening standards for residential mortgage loans, the Federal Reserve reported in its quarterly survey of bank lending standards released in late April. According to the survey, a net 30.2 percent of banks participating in the Senior Loan Officer Opinion Survey reported increased demand in the first quarter for traditional mortgage loans compared with a net 3.8 percent reporting stronger demand in the fourth quarter. The survey found, however, a net 1.9 percent of respondents reported tightening loan standards compared with the first quarter when a net 5.7 percent said they were easing standards. Also, according to the survey, a net 23.1 percent of respondents said demand for non-traditional residential mortgage loans increased in the first quarter compared with the fourth quarter when a net 4.3 percent said demand was slowing. The loans officers' survey said a net 11.3 percent of respondents reported tightening lending standards for non-traditional residential loans in the first quarter compared with 4.3 percent who reported tightening standards for similar loans in the fourth quarter. The net percentage tightening standards was far lower than it was immediately after the onset of the recession when a net 52.9 percent of loan officers reported tightening standards on traditional residential loans and 84.2 percent reported tightening standards on non-traditional loans. The loan officers surveyed reported easing standards on other types of lending: • A net 6.9 percent said they eased standards on commercial and industrial (C & I) loans to large and middle-market firms in the first quarter compared with a net 5.4 percent who tightened standards in the fourth quarter. • A net 1.8 percent said they eased standards on C & I to small firms in the first quarter; a net 1.9 percent reported tightening standards in the fourth quarter. • Demand for loans in the first quarter increased 31 percent from large and middle-market firms and 21.8 percent from small firms, according to the survey. 26 • A net 11.6 percent of banks responding said they eased standards on credit card loans in the first quarter, matching the results of the fourth quarter. A net 17.5 percent of respondents reported stronger demand for credit cards in the first quarter, up from 8.1 percent in the fourth quarter. • A net 17.3 percent of respondents said they eased standards in the first quarter for auto loans compared with a net 14.0 percent who said they eased standards in the fourth quarter. A net 35.3 percent of survey respondents reported stronger demand for auto loans in the first quarter, up from a net 14.3 percent in the fourth quarter. The Fed survey asks bankers whether demand is increasing, decreasing, or remaining the same and similar questions for lending standards. The central bank reports the results by subtracting decreasing or unchanged demand from increasing and the percentage of respondents easing or not changing standards from those reporting tightening standards. Start your day with a professional pick-me-up. Start your day with the most current and critical news on the mortgage default servicing industry from DSNews.com. Sign up for our e-mail newsletter and get the top stories delivered direct to your inbox every day. Register to receive your Daily Dose at DSNews.com