Big Banks Loosening, Small Banks Tightening

Posted on Aug 28, 2012

Once per quarter, the Federal Reserve surveys its member banks to ascertainlending conditions nationwide. Survey questions attempt to find the demand for bank loans of all types, and the willingness of banks to make these loans.

One such loan type is the "prime residential mortgage." That is a mortgage for a borrower whose credit scores are high; whose income is well-documented and sufficiently high; and, who chooses to finance his home via a conforming fixed-rate or adjustable-rate mortgage.

The Fed wants to know how banks are underwriting such loans. They responded as follows : 

  • Percentage of banks that tightened mortgage guidelines : 3%
  • Percentage of banks that made no change in mortgage guidelines : 94%
  • Percentage of banks that loosened mortgage guidelines : 3%

However, it's worth noting that, depending on the size of the surveyed bank, underwriting standards varied. Not a single "big bank" got tough on conforming mortgages -- none "tightened" their guidelines. Smaller banks, however, did.

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