WASHINGTON—During the third quarter banks were less likely to approve credit card and auto loan applications for borrowers with FICO scores of 620 than they were at the beginning of the year, according to the Federal Reserve's third-quarter Senior Loan Officer Survey.
Banks reported they eased their standards and terms for commercial and industrial loans as demand for such loans weakened. However, they left standards unchanged for most commercial real estate loans despite weakened demand.
The banks in the survey also reportedly eased their standards on most categories of residential real estate loans as demand fell. Lending standards on auto and credit card loans remained mostly unchanged as demand was unchanged from the previous quarter.
Not surprisingly, as FICO scores went up, so did banks' likelihood of approval according to the special set of questions.
‘Loan Demand Ebbing’
"Loan demand is ebbing, and while banks are easing loan standards for some products, that is mostly for prime borrowers," said NAFCU Chief Economist and Vice President of Research Curt Long following release of the survey results. "Given the strength of the labor market, household finances are in good shape overall and improving wage growth provides them with additional disposable income. But rising rates and the fading impact of fiscal stimulus mean that it’s unlikely we will see a sizable increase in household borrowing in 2019."
The survey included additional special questions on the effect of the slope of the yield curve on lending policies. Banks indicated that the slope of the yield curve had not yet affected their standards or price terms across the major loan categories, but signaled they would tighten them if the curve were to invert, Long noted.
The senior loan officer survey was based on responses from 70 domestic banks and 22 U.S. branches and agencies of foreign banks.