July 21, 2009
OCC Survey Finds Bank Underwriting Standards Tightening Further
WASHINGTON — The Office of the Comptroller of the Currency released today its 15th annual Survey of Credit Underwriting Practices and reported that commercial and retail underwriting standards tightened for the second consecutive year following a four year period of eased underwriting.
The 2009 survey is a compilation of examiner observations and assessments of credit underwriting standards at the largest national banks. The survey indicates that the renewed focus on fundamental credit underwriting principles that followed the 2007 market disruption has continued.
Despite tightened underwriting, examiner assessments found that risk in both the commercial and retail portfolios increased for the second consecutive year and they expect portfolio risk to increase over the coming year. The economy was a major factor in the 2009 survey findings and was reported to be the primary reason changes were made to underwriting standards. Loan production and underwriting standards were also influenced by the depressed real estate market, changes in risk appetite, refinancing concerns, and the impact that relaxed underwriting standards from prior years had on payment performance. This year's survey also indicates that the majority of banks now use generally the same underwriting standards regardless of the intent to hold or distribute. The OCC reminds national banks that underwriting standards should not be compromised by competitive pressures or the assumption that loans will be sold to third parties.
Despite the general tightening of underwriting standards banks continue to extend credit with 37 percent of the banks in the survey reported as increasing loan production while 31 percent experienced no measurable change in loan volume.
The 2009 survey included the 59 largest national banks and covered the 12-month period ending March 31, 2009. The aggregate total of loans was $3.6 trillion, which represented over 84 percent of all outstanding loans in the national banking system.
The survey can be found on the OCC's Web site.