Banks Tighten Standards For Real Estate Loans
The preliminary results of C.A.R.’s June 2012 Broker Confidence Survey indicate that bank lending standards have not eased recently. When asked how underwriting standards in May compared to the prior six months, the majority of brokers indicated that access to credit was harder for clients (39 percent) or unchanged (44 percent); only 17 percent of brokers claimed it was easier for their customers to access credit. (The final results will be released shortly.)
Underwriting Trends For Residential Real Estate
Why The Stiffer Standards?
In a nutshell, James Carville said it best, it’s “the economy, stupid”. The state of the economy has always played a significant role in banking policy. While interpretations of economic outlook vary, as do the resulting banking policies, the fact that the health of the economy weighs heavily on banks does not vary. Other influencing factors included product performance and appetite for risk. More than half of commercial and retail loan products showed similar or higher levels of risk compared to last year. This risk is closely related to general weakness in the economy having a negative influence on commercial and residential real estate property values, making loan collateral more volatile for banks.
What The Future Holds
The underlying principle of capitalism, competition, is the force that will drive the market to loosen underwriting criteria. As lenders attempt to improve their earnings and meet loan demand, the OCC expects them to ease those standards somewhat, yet
remain prudent.
source: California Association of Realtors
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