Economy Watch: Banks Loosen Lending Standards on Biz Loans; Mortgage Delinquencies Edge Up

U.S. banks have eased their lending policies for commercial and industrial loans, citing increased competition as the major factor. And according to LPS, 6.5 percent of U.S. mortgages were delinquent in September, up from the previous month.

The Federal Reserve reported on Monday in its October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices that U.S. banks have eased their lending standards in some cases, while experiencing little change in the demand for some kinds of loans over the past three months. The point of the survey is to examine any changes in the standards and terms on, and the demand for, bank loans to both businesses and households.

The October survey found that banks eased their lending policies for commercial and industrial loans, even though there was little change in demand for such loans over the past three months. But since there are more lenders in the field than there used to be, the domestic banks that eased their commercial and industrial lending policies cited increased competition for such loans as an important reason for doing so.

The survey results also indicated that banks, on the whole, didn’t substantially change standards or terms on lending to households, which are still relatively tight compared to pre-recessionary standards. A few respondents, including a few large banks, reported easing standards on prime residential mortgage loans. The survey is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

Mortgage Delinquencies Edge Up in September

LPS released its September Mortgage Monitor on Monday, reporting that 6.46 percent of U.S. mortgages were delinquent in September (over 30 days late, but not in foreclosure). The company also reported that 2.63 percent of mortgages were in the foreclosure process during the month, making a total of 9.03 percent in nonperforming mortgages for September.

The delinquency rate was up for the month from 6.2 percent in August, though most of the increase is attributable to seasonal factors. Year-over-year, the number of loans in foreclosure is down from 3.86 percent in September 2012. About 1.33 million loans are currently in the foreclosure process.

According to LPS, the states with the highest rates of non-current loans (delinquent and in foreclosure) in September were Florida, Mississippi, New Jersey, New York and Maine. The states with the lowest rates were Wyoming, Montana, Arkansas, and both of the Dakotas.

Wall Street had a mild up day on Monday after wobbling around a lot, with the Dow Jones Industrial Average gaining 23.57 points, or 0.15 percent. The S&P 500 was up 0.36 percent and the Nasdaq advanced 0.37 percent.