The standards and policies that banks and other lending institutions use to determine their lending practice vary over time for a variety of different reasons. The overall economic climate, a bank’s particular financial situation, and the local real estate market are among these reasons. The Federal Reserve sets
The January 2021 Senior Loan Officer Opinion Survey on Bank Lending Practices
Earlier this year, the Federal Reserve
- Lending to Businesses
- Lending to Households
- Questions on Banks’ Outlook for 2021
Banks are easing lending standards for commercial lending
You can read the report, see the full data and visualizations at
It’s interesting to note that banks reported tightening lending standards across the major categories for Commercial real estate — construction and land development loans, non-farm non-residential loans, and multifamily loans. Many banks reported that they expected to continue tightening standards for most business loans into 2021.
How this impacts borrowers
The standards and policies that banks and other lending institutions use when making loans have a direct impact on borrowers. When banks ease lending standards, that can translate into things like lower interest rates, more access to loans, a lower
While lending standards for commercial lending remain tight, residential lending standards are easing. Some banks reported easing standards for credit card loans, and even more banks reported easing standards for auto loans and for other consumer loans. Many banks also reported increasing
How this impacts potential home buyers and sellers
Easing residential lending standards has a positive impact on both
The study also reported a statistically significant difference in residential real estate lending standards based on the bank size. Large banks reported unchanged demand, while smaller banks reported strengthening demand for most types of residential mortgages. One impact from this difference is that it may be relatively easier or a smarter decision to look for smaller or community lenders if you’re looking to get a mortgage.
Banks’ Outlook for 2021
In addition to questions about lending standards, bank loan officers were also asked questions about their bank’s outlook for 2021. Many banks reported expecting weaker demand for most types of residential mortgages. Additionally, most banks expect stronger demand for consumer loans. Banks also report that they expect loan performance on existing consumer loans to deteriorate for most types of borrowers.
The Bottom Line
The Federal Reserve regularly surveys banks of different sizes all throughout the United States. In the most recent survey, banks reported an overall easing of mortgage lending standards. Easing lending standards allows more people to potentially qualify for a mortgage, and for borrowers to get lower interest rates or put down lower amounts for a down payment. Interest rates are still at historical lows, so this may be a perfect time to buy or refinance a home.