Mortgage lenders seemed to hesitate in 2008 as the full extent of the credit crisis continued to unwind on their balance sheets. The value of residential mortgages held by banks in 2008 fell 6% as credit standards tightened and demand for new loans weakened across the industry, according to a Federal Reserve report filed this week. Lending in other mortgage categories remained subdued, while loans on home equity lines of credit expanded. Commercial real estate lending grew 7%, down slightly from the previous year, while banks' borrowing from the Federal Home Loan Bank system grew a net 3%. Losses on banks' books increased 2% in the year, while commercial banks touted a 12.8% risk-based capital ratio at year-end, compared with 12.5% at the end of the third quarter. Delinquencies continued to mount throughout the year, bringing lenders to tighten standards. The Fed report's preparers -- Morten Bech and Tara Rice of the Federal Reserve Board's monetary affairs division -- said that, in response to the pressures on financial institutions and the associated uncertainty about their financial condition, banks and investors pulled back from risk-taking even further in the fall. As lending and investing standards contracted, conditions across most financial markets deteriorated sharply, illustrating the interconnected workings of the financial industry. "As house prices continued to decline," Bech and Rice wrote, "the performance of mortgage-related assets deteriorated further, and, with the onset of recession, credit problems spread to other asset classes and to a wider range of financial institutions." Read the report on commercial banks in 2008 here. Write to Diana Golobay.