The standards and guidelines that banks and other financial institutions use to determine their lending practices vary over time for a variety of reasons. The macroeconomic climate, the special financial situation of a bank and the local real estate market are among these reasons. The Federal Reserve continues Interest rate policy for banks in the United States and the Federal Reserve regularly surveyed major banks and credit unions to determine their attitudes towards credit and lending standards.
The January 2021 Senior Loan Officer's Statement on Bank Lending Practices
Earlier this year, the Federal Reserve issued a survey of the opinions of senior loan officers at banks and other credit institutions. The Federal Reserve regularly surveys credit institutions to assess their attitudes. The survey was divided into three different sections, each with questions about a different area of lending.
Loans to households
Questions about the banks' outlook for 2021
Banks are easing lending standards for commercial loans
You can read the report, view the complete data and visualizations at the Federal Reserve website. The main lesson is that banks are starting to relax lending standards for consumer credit. There are three main categories of consumer credit: credit card loans, auto loans, and other consumer loans, and standards relaxed across the board.
It is interesting to note that banks reported tightened lending standards in the main commercial property categories – construction and land development loans, non-farm loans, and multi-family loans. Many banks said they would expect to further tighten standards for most business loans by 2021.
How does this affect borrowers
The standards and guidelines that banks and other financial institutions apply when lending directly affect borrowers. When banks relax lending standards, it can result in lower interest rates, better access to credit, and a lower price Credit score required to get a loan and lower Down payments required.
While lending standards for commercial loans remain strict, lending standards for residential real estate are easing. Some banks reported easing standards for credit card loans, and even more banks reported easing standards for auto and other consumer loans. Many banks also reported an increase Credit limits on existing credit card accounts as well as lowering interest spreads on auto loans and other consumer loans.
How this affects potential home buyers and sellers
The easing of residential lending standards is having a positive effect on both Homebuyers and home seller. With a loosening of home loan standards, it may mean it will be easier to get a home loan. If it is easier to qualify for new loans, it means that more people are eligible and therefore are looking for new homes. When more people look for new homes, it strengthens the property market and makes it easier to sell. On the flip side, some may find it harder to find a home to buy due to increased competition.
The study also reported a statistically significant difference in residential lending standards based on bank size. Large banks reported unchanged demand, while smaller banks reported increased demand for most types of residential mortgages. One implication of this difference is that it may be relatively easier or smarter to look for smaller or communal lenders when looking to take out a mortgage.
Bank outlook for 2021
In addition to questions about lending standards, the bank lending officers were also asked questions about their bank's prospects for 2021. Many banks said they expected demand for most types of residential mortgages to be weaker. In addition, most banks expect greater demand for consumer credit. Banks also report that they expect credit performance on existing consumer loans to deteriorate for most types of borrowers.
The bottom line
The Federal Reserve regularly surveys banks of various sizes across the United States. In the latest survey, banks reported a general easing in mortgage lending standards. By relaxing lending standards, more people can potentially qualify for a mortgage and borrowers can get lower interest rates or lower amounts of money on a down payment. Interest rates are still at all-time lows, so this may be the perfect time to buy or refinance a home.
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Dan Miller (51 posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheaply. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.