WASHINGTON – Interest rates are at record lows, house prices are starting to creep higher and foreclosures have dropped, but banks aren’t making it any easier to get a mortgage, according to the latest survey of senior bank officials.

The Federal Reserve on Wednesday released its quarterly survey of senior loan officers, and the report found that American banks and foreign lenders’ branches have made it easier to get business loans, commercial real estate projects, car loans and credit cards – but not mortgages.

Despite not making it easier to obtain home loans, banks have reported increasing demand for mortgages, in line with data showing improving sales of homes as well as a big spike in refinance activity.

The Fed found that standards were getting tougher for mortgages insured by the Federal Housing Administration, particularly those with weaker credit scores. Nearly three-fourths of senior loan officers said they were less likely to approve a loan for an applicant with a FICO score below 580.

Why were the banks reluctant to lend? So-called “putback risk” – basically, the risk that the FHA would force them to buy back bad loans.

The survey also found demand by businesses for loans weakened slightly in the third quarter even though U.S. banks eased their lending standards.

Advertisement

This is the first weakening in demand for business loans in a year.

With global economic growth slowing and the fiscal cliff looming, businesses are increasingly reluctant to borrow, said Paul Ashworth, of Capital Economics.

The report fits with an economy where businesses are showing caution while homeowners are spending a bit more.

The Fed’s quarterly survey of senior loan officers showed demand picked up for commercial real estate loans, residential mortgages and auto loans.

Bank lending to businesses has been brisk in the past 12 months. Asked to explain the pick-up, banks said that they had benefitted from less foreign competition. Other banks said that they wanted to diversify into new business lines.

The Fed found that U.S. banks continue to tighten credit to European banks and other businesses.

The Fed surveyed officials at 68 domestic banks and 23 U.S. branches of foreign banks between Sept. 25 and Oct. 9.

 


Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.