Washington – A majority of the nation’s banks have tightened lending standards on subprime mortgages, the Federal Reserve said Monday in a survey that provided further evidence of spreading problems.
The Fed said it found that more than half of banks responding to a survey reported they had tightened their lending standards for subprime mortgages, loans offered to borrowers with weak credit histories.
The survey found nearly half of the banks responding said they had tightened loan standards for so-called nontraditional mortgages. The Fed defines this category as adjustable-rate loans with multiple payment options, interest-only mortgages and products referred to as “Alt-A” loans that offer such features as limited verification of incomes.
The Fed survey found that even on prime loans, which offer traditional payment options such as 30-year mortgages to borrowers with strong credit histories, slightly more than 10 percent said they had tightened lending standards in the past three months while none reported easing standards.
Analysts said the survey, which they follow closely for trends in the banking industry, showed banks were responding to growing troubles in mortgage lending, reflected by a rising number of mortgage defaults.
