US banks tighten loan standards

Tighter standards will make it harder to refinance home loans

Large US banks have tightened up their requirements for all types of loans during the past three months, according to a Federal Reserve survey.

Tighter standards and more expensive loans will make it more difficult for homeowners to refinance their loans.

Federal Reserve board member Randall Kroszner predicted that foreclosures and delinquencies were likely to rise in coming months.

Record defaults on home loans were responsible for the credit crunch.

The US central bank's October survey showed that 40% of domestic banks had tightened standards on traditional prime mortgages, compared with 15% in July.

Traditional prime mortgages are mainly long-term fixed-rate loans.

For non-traditional mortgages, 60% tightened standards, compared with 40% in July.

More than half of the nine banks surveyed that issue sub-prime mortgages had tightened standards, which was the same as in July.

Sub-prime loans are offered to people with inferior credit records or unpredictable incomes.

"Conditions for sub-prime borrowers have the potential to get worse before they get better," said Mr Kroszner.