Dive Brief:
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Just as mortgage lenders are relaxing credit qualifications and lowering down payments for homebuyers, large U.S. banks have eased standards for commercial real estate loans, according to the Office of the Comptroller of the Currency.
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In an OCC survey of examiners at the 91 largest banks, one-third reported they have loosened their standards for commercial construction loans—for the third year in a row. In a statement, the OCC attributed the practice to an effort to win more business and improve profits at a time when plenty of capital is available yet demand for loans is limited. The OCC called on lenders to “maintain prudent underwriting standards.”
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The report said lowering credit standards raises risk levels for the banks and predicted that the lending practices will become more widespread next year.
Dive Insight:
Commercial real estate loans are a specific area of concern, the examiners in the survey indicated, because of the rapid growth of the industry and “uncertain collateral.” Some fear that eroding standards for lending will land the country in another financial crisis, as underwriting at some large lenders has weakened to 2008 levels.