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Report on Underwriting Practices

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents
(Weighted)

 

6-Month Period Ending:

GENERAL UNDERWRITING PRACTICES

9/99

3/00

9/00

3/01

9/01

Have the institution's underwriting practices materially changed since the last examination: Yes

10.6

9.8

11.6

11.6

10.8

No

89.4

90.3

88.4

88.4

89.2

If practices have materially changed, are they:1 Substantially tighter

1.1

1.1

1.4

1.2

1.5

Moderately tighter

4.1

3.1

3.6

3.9

4.5

Moderately looser

4.3

4.4

4.7

5.2

3.3

Substantially looser

1.1

1.1

1.8

1.2

1.6

How would you characterize the risk associated with loan growth and/or significant changes in lending activities since the last examination: Low

54.3

55.4

52.5

51.3

49.8

Medium

28.9

28.6

29.3

31.2

31.8

High

4.1

2.3

4.8

3.3

4.4

Insignificant

12.7

13.8

13.4

14.2

14.1

RISK IN CURRENT PRACTICES
How would you characterize the potential risk associated with the institution's current Underwriting practices: Low

66.4

67.7

65.3

64.6

63.3

Medium

29.9

29.7

30.2

31.2

31.8

High

3.7

2.7

4.6

4.2

4.9

How would you characterize the potential credit risk of the institution's overall loan portfolio: Low

66.7

68.3

66.1

65.6

62.6

Medium

29.0

29.0

29.1

30.1

31.8

High

4.3

2.7

4.7

4.3

5.6

How would you characterize the potential risk in underwriting practices associated with loan participations purchased by the institution: Low

77.4

78.4

78.8

74.5

76.2

Medium

21.1

20.2

19.2

23.6

22.4

High

1.6

1.3

2.1

2.0

1.4

To what extent has recent lending been made in amounts that resulted in--or contributed to-- concentrations of credit to one borrower or industry: Never or infrequently

78.6

79.5

77.0

79.4

76.9

Frequently enough to warrant notice

13.9

14.1

16.3

14.2

15.5

Commonly or standard procedure

7.5

6.4

6.7

6.4

7.6

To what extent is the institution currently engaged in out-of-area financing:  Never or infrequently

87.1

88.2

85.9

84.6

85.1

Frequently enough to warrant notice

9.8

9.5

11.3

12.7

13.0

Commonly or standard procedure

3.1

2.4

2.9

2.7

1.9

How would you characterize the risk associated with loan administration: Low

63.1

65.5

62.1

63.4

60.0

Medium

31.6

31.2

32.3

31.0

34.0

High

5.3

3.4

5.6

5.6

6.0

To what degree does the institution fail to adjust its loan pricing on different quality loans to reflect differences in risk:2 Never or infrequently

86.2

87.8

87.6

87.6

89.6

Frequently enough to warrant notice

11.4

10.5

10.2

10.0

8.1

Commonly or standard procedure

2.5

1.8

2.3

2.4

2.3

To what extent does the institution fail to require a material principal reduction before renewing term loans:3 Never or infrequently

75.7

76.7

77.4

78.5

76.2

Frequently enough to warrant notice

20.9

20.8

19.3

18.8

19.8

Commonly or standard procedure

3.4

2.5

3.3

2.7

4.0

To what extent do the institution's written lending policies differ from actual practices : Never or infrequently

77.5

78.1

74.1

77.6

77.0

Frequently enough to warrant notice

19.4

19.0

22.2

18.7

20.0

Commonly or standard procedure

3.1

2.9

3.7

3.7

2.9

BUSINESS LOANS
To what extent does the institution make business loans without a clear and reasonably predictable repayment source: Never or infrequently

84.1

85.1

85.1

86.4

84.5

Frequently enough to warrant notice

13.8

13.5

13.8

12.4

14.2

Commonly or standard procedure

2.0

1.4

1.1

1.2

1.4

To what extent does the institution make business loans to borrowers who lack documented financial strength to support such lending: Never or infrequently

80.4

79.9

77.9

78.4

77.9

Frequently enough to warrant notice

17.8

18.6

20.2

19.8

20.2

Commonly or standard procedure

1.8

1.6

1.9

1.8

1.9

With respect to asset-based business loans, to what extent does the institution fail to monitor collateral: Never or infrequently

78.6

80.6

79.2

80.0

77.1

Frequently enough to warrant notice

19.0

17.3

19.4

16.8

19.1

Commonly or standard procedure

2.4

2.2

1.4

3.2

3.8

CONSTRUCTION LOANS
To what extent is the institution funding construction projects on a speculative basis (i.e., without meaningful pre-sale, pre-lease or take-out commitments): Never or infrequently

76.1

75.2

73.6

70.7

72.2

Frequently enough to warrant notice

20.1

20.4

21.9

23.1

23.1

Commonly or standard procedure

3.9

4.4

4.5

6.2

4.8

To what extent are construction loans made without consideration of repayment sources other than the project being funded: Never or infrequently

88.1

88.0

87.4

86.7

87.4

Frequently enough to warrant notice

10.5

10.5

10.7

10.8

10.6

Commonly or standard procedure

1.5

1.4

2.0

2.5

2.0

When alternative repayment sources are required, to what extent does the institution fail to take appropriate steps to verify the quality of these sources: Never or infrequently

87.9

87.7

87.5

87.4

86.9

Frequently enough to warrant notice

9.5

11.1

10.6

10.5

10.8

Commonly or standard procedure

2.5

1.1

1.9

2.1

2.3

To what extent does the institution fail to use realistic appraisal values relative to the current economic environment and/or to the performance observed on similar credits: Never or infrequently

87.9

89.5

87.7

88.3

88.2

Frequently enough to warrant notice

11.2

9.6

10.8

10.6

10.2

Commonly or standard procedure

0.9

0.9

1.5

1.1

1.6

To what extent does the institution fund, or defer, interest payments during the term of its commercial construction loans: Never or infrequently

87.1

86.0

85.2

83.5

85.2

Frequently enough to warrant notice

9.7

7.9

9.6

8.8

8.9

Commonly or standard procedure

3.2

6.1

5.2

7.8

5.9

To what extent does the institution fund 100% of the cost of construction and land, with no cash equity on the part of the borrower/developer: Never or infrequently

88.8

88.8

87.7

87.5

87.8

Frequently enough to warrant notice

10.8

9.7

11.0

8.8

9.5

Commonly or standard procedure

0.4

1.6

1.4

3.8

2.7

NONRESIDENTIAL LOANS
To what extent are commercial real estate loans made without consideration of repayment sources other than the project being funded: Never or infrequently

87.7

88.7

87.7

90.3

89.9

Frequently enough to warrant notice

10.5

10.2

10.6

8.2

8.8

Commonly or standard procedure

1.8

1.1

1.7

1.5

1.3

To what extent does the institution make interest-only, extended amortization, or negative amortization permanent commercial real estate loans: Never or infrequently

93.4

92.7

92.5

94.0

93.2

Frequently enough to warrant notice

5.9

6.9

6.8

5.1

6.0

Commonly or standard procedure

0.7

0.5

0.7

0.9

0.8

To what extent does the institution make short-term commercial real estate loans ('Mini-perms') with minimal amortization terms and large 'balloon' payments at maturity: Never or infrequently

81.8

83.0

82.2

84.8

86.4

Frequently enough to warrant notice

15.3

13.9

15.0

11.4

11.2

Commonly or standard procedure

2.9

3.1

2.9

3.8

2.4

To what extent does the institution fail to use realistic appraisal values relative to the current economic environment and/or to the performance observed on similar credits: Never or infrequently

90.1

91.4

88.7

90.9

90.7

Frequently enough to warrant notice

9.5

8.2

10.1

8.5

8.4

Commonly or standard procedure

0.4

0.4

1.2

0.6

0.9

HOME EQUITY LOANS
To what extent does the institution make home equity loans that push mortgage indebtedness above 90 percent of collateral value: Never or infrequently

89.3

88.3

86.6

90.5

88.8

Frequently enough to warrant notice

9.3

9.2

9.9

7.7

10.3

Commonly or standard procedure

1.4

2.5

3.5

1.8

0.9

To what extent does the institution qualify borrowers for home equity credit based on initially-discounted loan rates: Never or infrequently

98.1

99.0

97.3

98.7

98.4

Frequently enough to warrant notice

1.3

0.4

2.1

1.1

1.6

Commonly or standard procedure

0.5

0.6

0.7

0.2

0.0

AGRICULTURAL LOANS
To what extent does the institution make agricultural loans on the basis of land values that cannot be supported by farm operations: Never or infrequently

86.0

85.7

87.3

90.1

85.5

Frequently enough to warrant notice

11.9

13.1

11.6

8.0

13.2

Commonly or standard procedure

2.1

1.2

1.1

2.0

1.3

To what extent is the institution's agricultural loan portfolio tied to major crops affected by the phase out of farm subsidies: Never or infrequently

55.0

54.6

55.6

55.9

56.2

Frequently enough to warrant notice

22.8

24.7

23.0

20.3

21.9

Commonly or standard procedure

22.2

20.7

21.4

23.8

21.9

To what extent are agrigultural loans being made based on unrealistic cash flow projections: Never or infrequently

84.5

86.3

89.5

88.8

84.8

Frequently enough to warrant notice

14.3

12.2

9.8

9.8

13.6

Commonly or standard procedure

1.2

1.5

0.7

1.4

1.6

How would you characterize the change in the level of the institution's agricultural related carryover debt since the last examination: Sharp decline

2.0

3.1

1.9

1.6

1.5

Moderate decline

7.0

11.3

13.7

14.0

11.9

No change

48.7

52.7

58.4

63.5

63.2

Moderate increase

37.2

31.0

25.1

19.7

21.9

Sharp increase

5.1

2.0

1.0

1.3

1.5

CONSUMER LOANS
To what extent does the institution make 'secured' consumer loans without adequate collateral protection: Never or infrequently

85.0

85.7

86.3

85.4

85.5

Frequently enough to warrant notice

13.1

12.1

11.9

13.1

12.0

Commonly or standard procedure

1.9

2.2

1.8

1.6

2.6

To what extent does the institution make consumer loans to borrowers who lack demonstrable ability to repay: Never or infrequently

83.3

83.1

82.4

80.0

80.0

Frequently enough to warrant notice

14.7

14.4

15.4

17.6

16.8

Commonly or standard procedure

2.0

2.5

2.2

2.4

3.2

CREDIT CARD LOANS
Have the institution's underwriting practices for new credit card loans materially changed since the last examination: Yes

6.4

2.1

2.1

2.5

5.2

No

93.6

97.9

97.9

97.5

94.8

Are underwriting practices for new credit cards:4 Substantially tighter

0.8

0.7

1.2

1.4

1.1

Moderately tighter

3.3

0.5

0.5

1.1

2.9

Moderately looser

1.5

1.0

0.0

0.0

1.2

Substantially looser

0.9

0.0

0.3

0.0

0.0

How would you characterize the level of risk associated with the institution's current underwriting practices for new credit card loans: Low

72.6

80.1

78.5

77.7

79.2

Medium

24.2

18.5

20.0

21.5

20.3

High

3.2

1.4

1.5

0.9

0.5

How would you characterize the level of risk associated with the institution's credit card portfolio: Low

74.4

79.5

78.3

75.5

77.2

Medium

22.5

19.7

19.8

21.9

21.9

High

3.1

0.9

1.8

2.7

0.9

For credit card loans in the institution's portfolio with risk characterized as high, to what degree does the institution fail to adjust its loan pricing to account for this risk: Never or infrequently

84.4

100.0

60.0

74.8

50.0

Frequently enough to warrant notice

15.6

0.0

40.0

0.0

50.0

Commonly or standard procedure

0.0

0.0

0.0

25.2

0.0

1Prior to October 1, 1998, responses were either "tighter" or "looser."

2Prior to October 1, 1998, responses were "rarely," "to some degree," or "commonly."

3Prior to October 1, 1998, responses were "rarely," "to some degree," or "commonly."

4Prior to October 1, 1998, responses were either "tighter" or "looser."

Last Updated 11/07/2001 insurance-research@fdic.gov

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