The myth of harsh lending conditions in the US is probably only matched in its disconnect from reality by the just as entertaining narrative of the "one-time, non-recurring" harsh winter crushing Q1 GDP. A narrative which even needed support from none other than former Fed Chairman Bernanke who allegedly was denied a mortgage refinancing [8] on the $672K loan [8]he still owes for his 3-bedroom, 2100 square foot home (a story which is about as credible as 17 year olds making $72 million by cornering the penny-stock market).
For the truth we go to the Office Of the Comptroller of the Currency, which just reported in its annual survey that for the third year in a row, U.S. banks relaxed loan underwriting standards, "a trend mirroring the lax lending just before the financial crisis."
Those who blame the collapse in mortgage (and overall loan) volumes on strict supply limits - usually the same who say the crash in oil is entirely supply driven and has nothing to do with the Chinese slowdown, or the European triple dip, or the Japanese quadruple dip recessions - will be stunned to learn that according to the top US regulator, large banks in particular loosened lending standards as they tried to boost loan volumes.
But... that's goes entirely against the fake and contrived narrative? Can't they at least keep track of the lies they fabricate to boost confidence?
The answer is, clearly, no. But it gets worse, because not only are banks rushing to underwrite anything once again, the pace of underwriting is back to pre-subprime crash levels:
Banks still make high-quality loans, the regulator said, but credit risk, or the danger that borrowers will be unable to pay, is on the rise.
The survey looked at 91 banks and about 94 percent of loans in the federal banking system over the 12-month period that ended June 30.
"This year's survey showed a continued easing in underwriting standards, with trends very similar to those seen from 2004 through 2006," said Jennifer Kelly, senior deputy comptroller for bank supervision.
The surprise is that it took as long as it did to finally admit that it is not a supply issue, but one of demand, and specifically a completely lack thereof. The paradox is that while the OCC is concerned by the trends, it is none other than the Fed who is urging every single bank to become the Countrywide Financial of the New Abnormal: after all it is either lend the reserves, or use them to boost stocks ever higher into a market which even the BIS says is an unprecedented bubble.
Regulators said banks relaxed underwriting standards for credit cards, large corporate loans and leveraged loans, which go to entities that already have significant debt, because they faced more competition and struggled with low interest rates.
OCC examiners also said banks allowed exceptions to their own lending rules for some commercial products.
The punchline: "The combination of looser lending standards and policy exceptions adds extra risk that can crop up during crisis periods, the OCC said. Managers should look into the changing practices and try to reduce credit risk, regulators said."
Yup, managers will get right on with reducing risk, even if - or especially if - it means writing off their bonus for this and however many years in the future, until the whole house of cards comes tumbling down all over again.
