The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices examined trends in residential mortgage and business lending in the fourth quarter of last year, among other key metrics.
Banks reported little change in lending standards but weaker demand across most residential real estate (RRE) loan categories during the period covered by the survey. Lending standards and demand for home equity lines of credit (HELOCs) remained relatively unchanged.
“Banks reported having left standards basically unchanged over the fourth quarter for most RRE loan types, on balance, except for subprime and non-qualified mortgage (QM) jumbo mortgages, for which modest net shares of banks reported having tightened standards,” the report stated.
Demand was weaker in the fourth quarter among moderate net shares of banks for subprime mortgages, non-QM non-jumbo mortgages, government loans, loans eligible for purchase by the government-sponsored enterprises (GSEs) and QM non-jumbo non-GSE-eligible mortgages. Additionally, a modest net share of banks reported weaker demand for QM jumbo mortgages, while demand for non-QM jumbo mortgages and HELOCs remained basically unchanged.
Modest net shares of banks said they expect to ease commercial real estate standards for loans secured by multifamily properties, as well as for GSE-eligible residential mortgages. In contrast, the same share of banks indicated they expect standards to remain largely unchanged for all remaining loan types over 2025 and offered insight as to their reasoning.
“The most frequently cited reasons for expecting lending standards to ease, cited by major net shares of banks, were a more favorable or less uncertain economic outlook, an expected increase in competition from other lenders, an expected increase in risk tolerance, and an expected improvement in credit quality of their loan portfolio,” the report stated.
The fourth quarter also saw tighter lending standards for commercial and industrial (C&I) loans across all firm sizes, according to the survey results.
“Moderate and modest net shares of banks reported charging higher premiums on riskier loans to large and middle-market firms and to small firms, respectively, while modest net shares of banks reported more frequent use of interest rate floors and tighter collateralization requirements to firms of all sizes,” the report stated. “In contrast, modest net shares of banks reported narrowing interest rate spreads over the cost of funds and reducing the costs of credit lines to firms of all sizes. The remaining terms on C&I loans were basically unchanged, on net, to firms of all sizes.”
While demand for C&I loans from large and middle-market firms increased, it remained unchanged for small firms.