A recent report from the Office of the Comptroller of the Currency (OCC) reveals that commercial and retail underwriting standards tightened for the second consecutive year, following a four-year period of eased underwriting. The 2009 survey is a compilation of examiner observations and assessments of credit underwriting standards at the largest national banks, covering the 12-month period ending March 31, 2009. The aggregate total of loans represented by the 59 institutions in the study amounts to $3.6 trillion, representing over 84 percent of all outstanding loans in the national banking system. According to OCC officials, the survey indicates the renewed focus on fundamental credit underwriting principles, which followed the 2007 market disruption, has continued. Despite tightened underwriting, examiner assessments found that risk in both the commercial and retail portfolios increased for the second consecutive year and they expect portfolio risk to continue to increase over the coming year. The economy was a major factor in the 2009 survey findings and was reported to be the primary reason changes were made to underwriting standards.

The regulator said loan production and underwriting standards were also influenced by the depressed real estate market, changes in risk appetite, refinancing concerns, and the impact that relaxed underwriting standards from prior years have had on payment performance. The OCC’s survey also suggests that the majority of banks now use generally the same underwriting standards regardless of their intent to hold or sell the loans to third-party investors. Despite the general tightening of underwriting standards, the agency says banks continue to extend credit, with 37 percent of the banks in the survey reporting increased loan production.