OCC: Banks Tighten Underwriting in Most Lending Categories

Underwriting standards tightened dramatically through the end of March 2008 at national banks, the Office of the Comptroller of the Currency said Thursday. An annual survey of underwriting practices conducted by the bank regulator found that the March 2007 - March 2008 period represented the first period of credit tightening after four consecutive years of easing standards.

The OCC survey includes examiner observations and assessments of credit underwriting standards at the largest national banks; examiner assessments found that risk in both commercial and retail loan portfolios increased over the past year. The survey reflected that the disruption in financial markets that began in 2007 led to an abrupt change in risk appetite of the majority of the banks, and a renewed focus on fundamental credit principles by bank lenders.

Examiner assessments found that risk in both the commercial and retail portfolios increased over the past year; examiners also clearly expect portfolio risk to continue to increase over the coming year, as well, based on the survey’s results.

None of the 62 largest national banks involved in the OCC’s survey indicated that they had eased their underwriting standards for residential real estate in the past twelve month, while 56 percent said they had had taken steps to tighten underwriting guidelines in the area. Only one bank had eased its standards for home equity lending, both in conventional and high LTV products; that bank has since tightened its requirements since March, the OCC noted.

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