Loan underwriting standards declined

Loan underwriting standards at the largest U.S. banks declined for the fourth consecutive year, driven by weaker standards in residential real-estate lending before problems with sub-prime mortgages set off a credit crisis, a U.S. regulator said Thursday.

Bank examiners cited “robust competition” as the primary reason for the decline in credit standards, which were more prevalent among larger banks, the Office of the Comptroller of the Currency reported in an annual survey. The latest survey covered the 12 months that ended March 31.

The agency surveyed the 78 largest national banks, most of which do no sub-prime lending.

During the survey period, 19% of the banks questioned eased lending standards for residential-mortgage and home-equity loans. But in recent months, after the survey was completed, many banks tightened their lending standards for residential loans and discontinued some offerings, the report said.

The agency said it expected lenders and investors who buy loans “will refocus on fundamental credit principles, most particularly analyzing a borrower’s capacity to repay.”