The July 2014 Senior Loan Officer Opinion Survey on Bank Lending PracticesFull report (353 KB PDF)
The July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. This summary is based on the responses from 75 domestic banks and 23 U.S. branches and agencies of foreign banks.1
The July survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand. Domestic banks generally continued to ease their lending standards and various terms for commercial and industrial (C&I) loans.2 In contrast, foreign banks reported little change in standards and in most of the surveyed terms for C&I loans on net. Domestic respondents, meanwhile, also reported having eased standards on most types of commercial real estate (CRE) loans on balance. Although many banks reported having eased standards for prime residential real estate (RRE) loans, respondents generally indicated little change in standards and terms for other types of loans to households. However, a few large banks had eased standards, increased credit limits, and reduced the minimum required credit score for credit card loans. Banks also reported having experienced stronger demand over the past three months, on net, for many more loan categories than on the April survey.3
The survey included a set of special questions on the effects on the approval rates for home-purchase loans of the Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (the ATR/QM rule), which came into effect early this year.4 The majority of banks reported that the new rule has had no effect on the approval rate of prime conforming mortgages, in part because those loans qualify for a safe harbor under the exemption for loans that meet the underwriting criteria of the government-sponsored housing enterprises (GSEs). In contrast, about half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans and nontraditional mortgages.
Responses to a set of annual questions on the level of standards indicated that lending conditions had eased, on net, over the past year for many loan categories. As was the case in the July 2013 survey, domestic and foreign banks generally reported that standards for most categories of C&I loans were either easier than or near the midpoints of their ranges over the past decade. After reporting that standards had eased on the quarterly surveys over the course of the past year, domestic banks also generally indicated that standards on most types of CRE loans were now easier than or near the midpoints of their ranges. However, despite shifts toward somewhat more accommodative credit policies for most types of loans to households, moderate to large fractions of banks continued to report that the levels of standards for all types of RRE and credit card loans were at least somewhat tighter than the midpoints of their bank's longer-term ranges.
Questions on commercial and industrial lending. As has been the case in each of the past three surveys, a small percentage of domestic respondents reported having eased standards on C&I loans, both to large and middle-market firms and to small firms, over the past three months.5 In contrast, moderate to large fractions of banks reported having eased various price and nonprice terms on C&I loans on net. Of the terms included in the survey, banks continued to report the most widespread easing on spreads of C&I loan rates over banks' costs of funds. In addition, for all firm sizes, a significant fraction of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors on balance. Although a more moderate fraction indicated having eased loan covenants, close to one-third of the large banks in the sample reported having done so for loans extended to large and middle-market firms over the past three months.6 Most domestic respondents that reported having eased either standards or terms on C&I loans over the past three months continued to cite more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. Smaller numbers of banks also attributed their easing to a more favorable or less uncertain economic outlook or to an increased tolerance for risk.
On the demand side, a significant fraction of banks reported having experienced stronger demand for C&I loans from firms of all sizes on balance. To explain the reported increase in loan demand, banks cited a wide range of customers' financing needs, particularly those related to investment in plant or equipment, accounts receivable, inventories, or mergers or acquisitions.
Most foreign survey respondents reported that C&I lending standards had remained basically unchanged, though several indicated having eased some terms. Only a few foreign banks reported stronger demand, while none reported weaker demand.
Questions on commercial real estate lending. A modest net fraction of domestic respondents reported that they had eased standards on construction and land development loans and loans secured by nonfarm nonresidential properties over the past three months. However, respondents indicated that standards for loans secured by multifamily residential properties were unchanged on net. For all three types of CRE loans, reports of stronger demand continued to outnumber reports of weaker demand.
Lending to Households
(Table 1, questions 13-29)
Questions on residential real estate lending. A moderate net fraction of domestic banks reported having eased their standards on prime residential mortgages, on net, while most indicated that standards on nontraditional mortgages and home equity lines of credit (HELOCs) were relatively little changed. Banks reported having experienced stronger demand, on balance, for prime residential mortgages for the first time since a year ago, and for HELOCs for the first time since the October 2013 survey.
Special questions on the effects of the ATR/QM rule. The July survey included a set of special questions regarding the effects of the new ATR/QM rule on the approval rate for applications of various types of home-purchase loans.7 Only a small fraction of large banks indicated in the survey that the new rule has affected their approval rates for prime conforming mortgages, while a more substantial share of the other respondents reported that the rules were lowering their approval rates on such loans. In addition, among the banks reporting that the rules had no effect on their approval rates, about half indicated that lending policies would have been tighter without the safe harbor for mortgages that pass the GSEs' automated underwriting models. In contrast, more than half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans. Among the institutions indicating lower approval rates for such loans, most reported that each of the following provisions were important reasons for the lower approval rates: the ATR provisions that require mortgage originators to evaluate income and to assess credit history, assets, and debt payments; and the QM provision that caps the borrower's back-end debt-to-income ratio at 43 percent. Finally, more than half of the 36 respondents that originate nontraditional mortgages also indicated lower approval rates on nontraditional home-purchase loans due to the ATR/QM rule.
Questions on consumer lending. A modest net fraction of domestic respondents indicated that they were more willing to make consumer installment loans relative to three months ago. Most banks, however, reported that standards and the surveyed terms on various types of consumer loans were little changed. A few large banks reported having eased lending standards, increased credit limits, and lowered minimum required credit scores on credit card loans. Meanwhile, moderate fractions of banks reported having experienced stronger demand for each of the three types of consumer loans in the survey--credit card loans, auto loans, and other consumer loans. Only a few respondents reported that demand had weakened for any of these types of loans.
The July survey included a set of special questions that asked respondents to describe the current level of lending standards at their bank, rather than changes in standards over the survey period.8 Specifically, for each loan category surveyed, respondents were asked to consider the range over which their bank's standards have varied between 2005 and the present and then to report where the current level of standards for such loans resides relative to the midpoint of that range.
Domestic banks and foreign institutions generally reported that lending standards on different kinds of C&I loans to large and middle-market firms (investment-grade syndicated loans, below-investment-grade syndicated loans, and other loans to large and middle-market firms) were currently at levels that were easier than or near the midpoints of the ranges that those standards have occupied since 2005. In particular, close to half of the large banks and foreign institutions reported that standards for syndicated loans to below-investment-grade firms were easier than the midpoint of their longer-term range. In contrast, a similar fraction of the other domestic respondents indicated that their standards on such loans were tighter than the midpoint of their range. Compared with the July 2013 survey, however, a smaller fraction of the large domestic respondents reported that standards on syndicated loans to below-investment-grade firms were easier than the midpoint of their longer-term range, while at other domestic banks and foreign institutions, this share was relatively little changed.
The majority of domestic respondents indicated that lending standards on loans both to small firms, with annual sales of less than $50 million, and very small firms, with annual sales of less than $5 million, were near the midpoints of their ranges since 2005.
Regarding the level of standards for CRE loans, domestic banks reported that the current level of standards on loans secured by multifamily properties and loans secured by nonfarm nonresidential properties were generally easier than or near the midpoints of their ranges. However, nearly half of the respondents reported that standards on construction and land development loans were tighter than the midpoints of their longer-term ranges. Compared with the results in the July 2013 survey, these results indicate an easing of credit conditions for all three types of CRE loans from the corresponding levels reported a year ago.
With respect to RRE loans, moderate to large net fractions of domestic banks reported that lending standards for all six categories of RRE loans included in the survey (prime conforming mortgages, mortgages guaranteed by the Federal Housing Administration or the U.S. Department of Veterans Affairs, prime jumbo mortgages, subprime mortgages, nontraditional mortgages, and HELOCs) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005. However, these results still indicate a net easing of credit conditions for RRE loans from the even tighter levels reported in the July 2013 survey.
As for consumer loans, a majority of the domestic respondents indicated that standards were near the midpoints of their longer-term ranges for prime credit card, prime auto, and other consumer loans. Compared with the results in the July 2013 survey, a smaller fraction of banks reported that their standards were tighter than their midpoints. Among the moderate number of banks that offer subprime auto loans, some indicated that standards for those loans were easier than the midpoint of their range since 2005, but, on net, standards on such loans were tighter than the midpoint of that range. Likewise, standards on subprime credit cards also appeared to have remained tighter than the midpoint of the range since 2005, on net.
This document was prepared by Seung Jung Lee, with the assistance of Mike Massare and Shaily Patel, of the Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
2. For questions that asked about lending standards or terms, reported net fractions equal the fraction of banks that reported having tightened ("tightened considerably" or "tightened somewhat") minus the fraction of banks that reported having eased ("eased considerably" or "eased somewhat"). Return to text
3. For questions that asked about loan demand, reported net fractions equal the fraction of banks that reported stronger demand ("substantially stronger" or "moderately stronger") minus the fraction of banks that reported weaker demand ("substantially weaker" or "moderately weaker"). Return to text
4. The advance notice of proposed rulemaking for the ATR/QM rule was first issued on January 10, 2013. The final rule, amending certain provisions, was issued on September 13, 2013, and came into effect on January 10, 2014. The ATR/QM rule is composed of ATR provisions and QM provisions. Further information is available on the Consumer Financial Protection Bureau's website at www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z. Return to text
5. The survey asked respondents separately about their standards for, and demand from, large and middle-market firms, which are generally defined as firms with annual sales of $50 million or more, and small firms, those with annual sales of less than $50 million. Return to text
7. The ATR provisions require the creditor to make a "reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms" (RegulationZ-Truth in Lending, 12 C.F.R. pt. 1026 (2013)). These provisions generally require creditors to evaluate the borrower's credit history, assets, debt payments, income, and so on. The QM provisions provide banks with greater protection from certain types of litigation if complied with, and they include limits on debt-to-income ratios and risky features such as negative amortization, interest-only payment schedules, long durations, or high fees. Return to text