OCC Sees Banks Tighten Underwriting Standards

The majority of the nation’s largest banks tightened underwriting standards in 2009, according to an annual survey from the Office of the Comptroller of the Currency (OCC). The survey covered underwriting standards for both commercial loans and retail loans — which include residential mortgages. During the 12-month period ending March 2009, the OCC examined the top 59 banks with assets of $3bn or more, covering 84% of total loans in the national banking system. The survey found that 86% of the banks tightened their underwriting practices compared to 52% in 2008. None of the banks eased their standards. The tightened standards clash with surveys from 2004 to 2007 when banks eased terms and conditions under which they extended or renewed credit, according to the survey. Despite the stricter underwriting standards, 37% of the surveyed banks increased loan production while 31% experienced no measurable change. The level of credit risk in those portfolios, however, increased from the previous survey and is expected to increase over the next 12 months. “The financial market disruption continues to affect bankers’ appetite for risk and has resulted in renewed focus on fundamental credit principles by bank lenders,” the OCC reported. Loan portfolios that experienced the most tightening in underwriting during the survey period include home equity, residential and commercial construction, followed by international lending and lending to hedge funds. Write to Jon Prior.