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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (23242)12/11/2004 4:00:23 PM
From: ild  Read Replies (2) of 110194
 
Federal regulators have strengthened warnings surrounding underwriting standards for home
equity lines of credit and auto loans. According to the Federal Deposit Insurance Corp.
(FDIC), these heightened concerns stem from rising interest rates and the likelihood that
home prices will level off. The Office of the Comptroller of the Currency (OCC) stated that
following its review of home equity lending practices, it was most disappointed in the
lenders’ increased willingness to minimize the analysis of borrowers’ ability to repay these
loans and to instead rely on credit scores, which reflect historical performance rather than the
borrower’s ability to take on more debt. The OCC is planning to monitor the issue and
release guidance on more stringent home equity management standards. According to the
FDIC, low levels of credit losses will probably not be able to be sustained, especially with
the current highly unseasoned nature of the loans. The average age of the outstanding loan is
16 months, with the peak delinquency period being about 36 months. Furthermore, the
agency has expressed concern over the competitive pressures in the auto lending market,
which seem to be causing banks to lower their underwriting standards. According to an
industry article, the percentage of auto lenders allowing car dealers to approve a loan without
first asking them doubled to 51%. Although not currently a problem, these trends could
have deteriorating implications in the future.
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