Fed reports that banks will keep their standards for loans tight so far

image Most banks expect their lending to remain tight through the second half of next year, with the exception of mortgage standards, which already are loosening a bit, the Federal Reserve said on Monday.

According to the Fed’s latest survey, based on the responses of 55 domestic banks and 23 U.S. offices of foreign banks, about 20% of U.S. banks tightened their lending standards on prime home mortgages in the April-June quarter, down from around 50% in the previous quarter and a peak of about 75% a year ago. Meanwhile, 45% of banks say they tightened standards on non-traditional mortgages, such as adjustable-rate loans with multiple payment options, down from 65% in the April survey and around 85% a year ago. Around 35% of U.S. banks in the July survey reported tightening their lending standards for credit cards, down from nearly 60% in the previous survey and around 65% a year ago.

Demand for prime mortgages has begun to revive, posting its first increase in the January-March quarter since the Fed began to track those loans separately in April 2007. The uptick in mortgage demand comes as rates rose last week. Rates on 30-year home loans remained above 5%, at 5.29%, after reaching a record low earlier this year.

The Federal Reserve reported that most of the banks polled expect their standards for all types of loans to remain tighter than average levels over the past decade through at least the second half of 2010. For businesses and families with tarnished credit, that is expected to continue into "the foreseeable future" for many banks. Meanwhile, the Treasury Department said on Monday that the value of loans held by the 22 biggest banks receiving federal bailout support fell in June for a fifth-consecutive month. That survey did find that the amount in new loans made in June grew 12.7% following a 1.4% increase in May.

Furthermore, several major credit card companies reported fewer customers defaulted on their accounts in July. American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services and JPMorgan Chase all say the number of account balances written off due to non-payment fell. However, Capital One, Discover and Citibank reported an increase in the number of customers falling behind on payments due more than 30 days. Customers delinquent from 30 to 59 days rose for Capital One and Citibank.

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