The Office of the Comptroller of the Currency’s 18th Annual Survey of Credit Underwriting Practices, released Thursday (June 28), shows that underwriting standards remained largely unchanged from last year, although some easing was noted in select commercial and retail products.
Banks continued to react to changing economic conditions, competition, and ongoing portfolio risk. Examiners reported banks that eased standards generally did so in response to changes in economic outlook, competitive environment, and the bank’s risk appetite including a desire for growth.
Large banks, as a group, reported the highest share of eased underwriting standards. Loan portfolios that experienced the most underwriting easing included indirect consumer, credit cards, large corporate, asset-based lending and leveraged loans.
Loan portfolios that experienced the most underwriting tightening included high loan-to-value home equity, international, construction and residential real estate loans.
“This year’s survey showed the continued normal progression toward stable or easing underwriting standards as the economic environment stabilizes,” said John Lyons, senior deputy comptroller and chief national bank examiner.
He went on to say “examiners will be focusing on underwriting standards as banks ease standards to improve margins and compete for limited good loans.”
Banks should ensure appropriate attention to underwriting, loan structures, and loan administration as competition and the anxiety for earnings can lead to heightened risk. This is especially notable for loan products that have already seen easing such as leveraged lending, asset-based lending, indirect consumer lending, and credit cards.
The survey is a compilation of examiner observations and assessments of credit underwriting standards. The 2012 survey included 87 of the largest national banks and federal savings associations and covers the 12-month period ending February 29. The aggregate total of loans was $4.6 trillion as of December 31, 2011, which represents approximately 91% of total loans in the national bank and federal savings association system.
Greg McBride, senior analyst with BankRate.com, said consumers are borrowing more, but it's mainly those American's with pristine credit and sound personal balance sheets. He said the subprime secondary credit market is still anemic and millions of American's still have very limited access.
Last year, The Wall Street Journal reports nearly 90% of all new mortgages originated went to households with high credit scores. But prior to the financial crisis of 2008 it was about half.