More than half of the banks surveyed by the Federal Reserve raised their standards in subprime lending in recent months, as U.S. institutions rein in requirements for many loan products in an attempt to limit their exposure to the subprime crisis. A Federal Reserve survey released Monday indicated that the banks tightened credit on U.S. subprime and non-traditional mortgages, while also taking a more cautious stance regarding prime mortgages, syndicated loans and commercial real estate loans (see chart). Fifty-six percent raised standards in their sub-prime lending, according to the quarterly survey of senior loan officers conducted in July, while 14% tightened standards on prime residential mortgages. Some 25% of banks raised standards for getting a commercial real estate loan, although there were no changes to standards for commercial loans and consumer loans. Terms for business loans eased as competition increased with some 33% of the banks saying they had also cut their margin between the loan rate and cost of funds. Generally, the banks said they had only limited exposure to syndicated loans and leveraged lending; foreign banks operating in U.S. generally had greater exposure than domestic banks. Both domestic and foreign banks expected a tightening of credit standards and terms in the syndicated loan market in the coming months. Because the poll was taken in the second half of July, however, some feared that it may not reflect a heightened sense of risk-aversion given market volatility over the past couple weeks.
Sources: Fed survey, Thomson Financial, MarketWatch, Reuters, Financial Times,
Commentary: The Week Ahead: The Fed Treats The Symptoms • Change In Credit Spreads By Sector • Lessons From A Chaotic Market
Stocks/ETFs to watch: DIA, SPY, AGG, KBE, PJB
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