Easing Continues on Business, Residential Mortgage Loans Amid Softer Demand

In the previous quarter, banks eased terms and standards for business loans, while tightening slightly on commercial real estate loans and easing in most residential mortgage loan categories, according to the Federal Reserve’s latest senior loan officer opinion survey released today. On net, banks reported weaker loan demand across several lending categories.

On net, 16 percent of banks — the same as the period before — eased standards and terms for C&I loans to large and middle-market firms; just 3.1 percent banks on net said they eased for smaller firms. For large and midsize firms, banks that eased terms were more likely to allow bigger credit lines, relax interest rate spreads and loosen up loan covenants. Every bank that eased cited more aggressive competition as an important reason. More banks saw weaker demand for C&I loans than saw stronger demand, with nearly two-thirds of those reporting weaker demand saying that customers were shifting to other loan sources.

On net, more banks tightened standards on CRE loans than eased them amid weaker demand. For residential mortgage loans, 11.3 percent reported easing on GSE-eligible mortgages. Banks on net reported easing in every mortgage loan type reported. Mortgage demand continued to slip during the previous quarter. Reversing the recent trend, in the consumer lending category, a net 2.2 percent of banks eased standards on credit cards, principally by lowering credit limits, increasing spreads and increasing the minimum required credit score, while a net 3.6 percent eased terms on auto loans. Read more.