Fed Survey Shows Banks In Line With Pretend & Extend

The Federal Reserve released its Senior Loan Officer Opinion Survey on Bank Lending Practices. The results showed an increase in residential lending over the past three months but showed a continual decline in commercial lending activity.

The survey asked bankers why CRE lending has declined in 2009 and also addressed commercial real estate loans on their books that were scheduled to mature by Sept 09.

The table below shows their responses:

The survey showed that 75% of respondents said they had extended at least 25% of the loans that were maturing. This indicates that commercial real estate loans are frequently being extended.

This statistic will no doubt go up next year as the brunt of the maturing commercial loans come due. These maturing loans were often the most toxic loans made at the height of the bubble at a time when underwriting guidelines were at their lowest historical levels.

The chart below shows the demand for commercial real estate  is at extremely low levels even with a spike in maturing loans looming.

 

Tightening credit standards for commercial loans indicate that the months ahead present significant challenges for commercial real estate financing in the foreseeable future.  The chart below shows the increasingly tight credit standards are being applied to new loans.

The complete survey results can found here http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200911/fullreport.pdf.