Banks Getting Tougher with Underwriting!

Mortgage lenders credit standards on home loans have gone through more "tightening" during the past three months than they did in more than 10 years, according to a recent federal survey.

These results were taken from the Federal Reserve Board's January 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices.

Nearly 40% of mortgage professionals (from 57 U.S. banks) reported less demand for residential mortgages, which is a somewhat smaller net fraction than in the October survey, the Fed said.

While home loan demand weakened, about 15% of banks said they had tightened credit standards on such loans over the past three months -- the highest net fraction posted since the early 1990s, according to the survey report.

About 35% of domestic institutions expect the quality of their traditional residential mortgages to decline.  That is, they will be more difficult to qualify for and terms may not be as attractive.

An even bigger portion, one-half of domestic banks, reported they anticipate a worsening of the quality of their non-traditional home loans.  Non-traditional home mortgages include products such as the Option ARM.  (In the opinion of this branch manager, the Option ARM is never a good idea anyway.) 

A year ago, based on the same set of special questions in the January 2006 survey, a net fraction of respondents that anticipated some deterioration in credit quality was notably smaller for loans to both businesses and households.