Feds report historic highs for lending standards

Taken from CNNMoney.com on May 5th, 2008
Banks tightening mortgage standards
Fed: Standards on consumer and business loans near historic highs in response to the credit crisis.
Last Updated: May 5, 2008: 2:37 PM EDT
WASHINGTON (AP) -- The Federal Reserve reports that more banks are tightening lending standards on home mortgages, other types of consumer loans and business loans in response to a spreading credit crisis.
The Fed reported Monday that the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories.
The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15% saying those standards had been tightened considerably.
The current credit crisis began last year with rising defaults in the market for subprime loans, loans extended to borrowers with weak credit histories. Many of those subprime loans were packaged into mortgage-backed securities and sold to investors around the world.
Those investors, however, have pulled back from the subprime market and from other types of credit as losses have soared with the rising mortgage defaults.
As losses have mounted, more and more banks have grown reluctant to make loans and have been tightening up on standards. The Fed has been pumping billions of dollars into the banking system in an effort to encourage banks to keep lending to guard against the threat that the tighter credit could push the country into a deep recession.
The latest Fed survey found that banks tightened their lending standards on not just prime or traditional mortgages, but also on nontraditional mortgages such as "Alt-A" loans given to people who supplied only limited income verification. The survey found that about 32% of the banks responding to the survey had tightened "considerably" their standards for nontraditional mortgages and another 43% had tightened standards in this category "somewhat."
The survey found that only nine banks are currently making loans in the subprime category, and of that group, seven had tightened lending standards either considerably or somewhat.
First Published: May 5, 2008: 2:24 PM EDT