Economies: USA -if you want a mortgage, the banks don't want to know

The Fed's April survey included "Special questions in the survey [that] queried banks about changes in terms on home equity lines of credit and about their student loan programs. This article is based on responses from 56 domestic banks and 21 U.S. branches and agencies of foreign banks."

In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on a broad range of loan categories over the previous three months. The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey. Compared with the January survey, the net fractions of banks that tightened lending standards increased significantly for consumer and commercial and industrial (C&I) loans. Demand for bank loans from both businesses and households reportedly weakened further, on net, over the past three months, although by less than had been the case over the previous survey period.

So, less companies are asking for credit, and of those that do more are being rejected or subjected to more stringent conditions - and higher rates:

Regarding C&I loans to small firms, about 50 percent of domestic respondents reported tightening their lending standards on such loans over the survey period, compared with about 30 percent who reported doing so in the January survey. On net, about 65 percent of banks—up from about 40 percent in the January survey—also noted that they had increased spreads of C&I loan rates over their cost of funds for these firms. In addition, large net fractions of domestic respondents reported tightening other price-related terms, and smaller fractions tightened non-price-related terms on C&I loans to small firms.About 60 percent of U.S. branches and agencies of foreign banks—a slightly smaller fraction than in January—noted that they had tightened lending standards on C&I loans over the past three months, and very large majorities also reported that they had tightened price terms on such loans. In particular, around 80 percent of foreign banks—about the same as in the January survey—reported increasing spreads of loan rates over their cost of funds. Finally, large fractions of foreign respondents reported tightening selected non-price-related terms over the past three months.

The reason? "substantial majorities of domestic and foreign respondents" said "it's the economy stupid" - or words to that effect.

For homeloans, the situation is hardly better - although it is getting worse more slowly, that is only because of severe changes in policy when the crisis hit hardest in Q4. Until then, many had been in denial - including the Fed's Bernanke.

Majorities of domestic respondents reported that they had tightened their lending standards on prime, non-traditional, and sub-prime residential mortgages over the past three months. About 60 percent of domestic respondents—a somewhat larger fraction than in the January survey—indicated that they had tightened their lending standards on prime mortgages. Of the 37 banks that originated non-traditional residential mortgage loans, about 75 percent—a somewhat smaller fraction than in the January survey—reported a tightening of their lending standards on such loans over the past three months. Finally, 7 of the 9 banks that originated subprime mortgage loans—a somewhat higher proportion than in the January survey—indicated that they had tightened their lending standards on such loans.

And, as in the commercial sector, applications are down

About 25 percent of domestic respondents, on net, experienced weaker demand for prime residential mortgage loans over the past three months, and 30 percent indicated weaker demand for non-traditional mortgage loans over the same period.

Readers will remember that in November 2007 the Fed's Bernanke suggested that home owners should raise funds by converting equity in their property into debt in order to support their cashflow. The banks clearly don't agree and see such ideas as dangerous, and they have responded accordingly, and borrowers are not dashing to this option either:

About 70 percent of domestic respondents—a somewhat higher fraction than in the January survey—indicated that they had tightened their lending standards for approving applications for home equity lines of credit (HELOCs) over the past three months. Regarding demand for these lines, about 20 percent of domestic banks, on net, reported weaker demand over the past three months.