Earlier this year, the Federal Reserve and other banking entities suggested lenders tighten their underwriting belts because of a trend toward originating more riskier mortgages, but a more recent Federal Reserve report shows the riskier loans account for less than a quarter of lenders' residential originations and existing loans.

However, more than half the banks more recently surveyed conceded that the riskier-loan share of mortgage originations had indeed increased over the past year and three large banks -- accounting for almost 40 percent of the surveyed banks' residential mortgage holdings -- indicated that their share of originations on riskier mortgages exceeded 75 percent in the past year.

The recently released Federal Reserve's "July 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices" addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.

Loan officers from 54 domestic banks and 20 U.S. branches and agencies of foreign banks responded to the survey. Each survey contains a special focus and this survey contained pointed questions about lenders originating and holding so-called "nontraditional mortgage" products -- adjustable rate mortgages with payment options, interest-only mortgages, so-called "no-doc" mortgages with limited income verification and mortgages secured by non-owner-occupied properties, typically investment properties, among others that can be risker than fixed-rate loans for owner occupied homes.

This spring, the Federal Reserve, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the National Credit Union Administration, this week issued "Credit Risk Management Guidance For Home Equity Lending" because the agencies were concerned lenders were writing too many risky loans.

The new second quarter July loan officer opinion survey found that they still are.

• One third reported that the share of riskier loans on the books was between 5 percent and 15 percent and another one third estimated the number was less than 5 percent. In both cases, the numbers were similar to first quarter reports. Only one bank indicated it's holdings of riskier mortgages accounted for more than one-half of all it's residential mortgages.

• When it came to originations -- new loans -- 41 percent said their share of the riskier loans over the past year was between 5 and 25 percent. These banks accounted for 72 percent of all residential mortgages on the books during the first quarter. Another third said their share of originations of the riskier loans over the past year was less than 5 percent.

• More than half of the loan officers said their bank's share of riskier loan originations over the past twelve months was higher than it had been a year earlier and 12 percent said the share was "substantially" higher.

• Three large banks -- accounting for 40 percent of all the respondents' residential mortgages outstanding -- indicated that their share of nontraditional mortgage originations that had been securitized exceeded 75 percent and said they were somewhat more likely to originate even more riskier loans.

  The majority of banks indicated they were less likely to securitize riskier mortgages.

• Second home and investment property mortgage originations accounted for 10 percent of originations by a large majority of lenders. Over the past year the percentage was less than 10 percent.

• A quarter of the banks indicated moderate growth in the number of originations for second home and investment properties over the past year, especially larger banks.

Published: August 18, 2005

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.