U.S. banks lower lending standards

U.S. banks, faced with rising mortgage competition as home sales advance, eased lending standards for the first time in 11 years, the Office of the Comptroller of the Currency said.

"We see an increase in the easing of underwriting for both real-estate and commercial products," said Barbara Grunkemeyer, the agency's deputy comptroller for credit risk. "The banks can take on a little more risk because their portfolios are in good condition."

The comptroller's annual survey of underwriting, released in Washington yesterday, showed that banks also eased standards for commercial loans during the past year.

The regulator, which oversees nationally chartered banks, surveyed the largest 71 institutions, including Bank of America, Wells Fargo and Citigroup, whose $2.9 trillion of loans represent 90 percent of outstanding national bank loans.

"Ambitious growth goals in a highly competitive market can create an environment that fosters imprudent credit decisions," Grunkemeyer said in a statement. "Higher credit limits and loan- to-value ratios, lower credit scores, lower minimum payments, more revolving debt, less documentation and verification, and lengthening amortizations have introduced more risk to retail portfolios."

The healthy economy has made it more likely that companies will seek out other forms of financing besides bank loans. That, in turn, forced banks to lower their standards to lure more customers.

The survey said banks remain sound, even as it urged lenders to be more cautious in lending in the future. Banking regulators have said they are eyeing the growth of adjustable-rate and interest-only mortgages with some concern.