08/21/2009 | By Allen Kenney
Banks are still ratcheting up standards for commercial real estate loans, according to the Federal Reserve's quarterly survey of lending institutions.
The Fed's July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices found that 46.3 percent of domestic banks reported tightening lending standards during the second quarter. None reported an easing of standards, and 11 percent of respondents said their credit standards had "tightened considerably."
While the results marked the 15th consecutive quarter in which banks had toughened up their credit standards, signs that the lending market may be stabilizing were apparent in the data. The share of banks reporting tighter standards fell approximately 20 points from the first-quarter level of 66 percent. Nearly 90 percent of banks were reporting stricter lending standards in the fourth quarter of 2008.
"Following more than three years of tightening credit, the most current survey of senior loan officers suggests that the tightening cycle may be in the initial stages of moderating. Credit standards have stabilized at some institutions, albeit at much higher levels than prevailed in the period leading up to the real estate market's peak," noted Sam Chandan, president and chief economist of Real Estate Econometrics. "Consistent with previous cycles, the mortgages that are being made at the current trough in investment activity are unusually conservative and have a low probability of default."
Banks reporting weaker demand for commercial real estate loans dipped slightly from 71.6 percent in 2009's first quarter to 70.3 in the second.