The US Office of the Comptroller of the Currency has released its annual look at bank underwriting standards, and it has spotted some worrying trends.
Banks are lending a lot more loosely to everyone but homeowners, but that’s not because people looking to buy homes are less creditworthy. It’s because banks have gone softer on just about every lending category. That’s especially true for leveraged loans, the kinds of loans companies obtain when they already have lots of other debt, which has been a thorn in regulators’ sides (paywall) for months. Banks said they eased standards more for that category than any other this year.
“The results of this year’s survey show a third consecutive year where underwriting standards have eased within both commercial and retail products,” the agency noted in its report. “This compares to very similar results noted in the 2006 underwriting survey, just prior to the most recent credit crisis.”
The mortgage market has been tight since the recession, largely because banks and other lenders have pulled back (paywall) from making home loans that wouldn’t qualify for a government guarantee. This year, most banks didn’t move to change that. In fact, prospective homeowners saw banks tighten lending standards more for them than for pretty much every other type of borrowing.