INTRODUCTION

At the end of each FDIC-supervised bank examination,

the examiner in charge responds to a questionnaire on the

bank’s underwriting practices. This Report on Underwriting Practices covers the responses submitted during the

six months beginning October 1, 2000, and ending March

31, 2001. The number of responses received during this six

months was 1,181—which represents approximately 21

percent of the number and 29 percent of the assets of all

FDIC-supervised banks. The results reported here refer to

weighted responses and are estimates of the underwriting

practices of all FDIC-supervised banks. An explanation of

the use of weights appears in “Purpose and Design of the

Report.” All weighted responses appear in the table at the

end of this Report. Throughout the Report, the response

rates have been rounded to the nearest 1 percent for ease of

exposition.

GENERAL UNDERWRITING TRENDS

During the six months ending March 31, 2001, examiners indicated that 6 percent of FDIC-supervised banks had

loosened their underwriting practices since the previous

examination and 5 percent had tightened them. These percentages were the same as during the previous six months.

As a result, about 12 percent1 showed a material change in

underwriting practices since the previous examination—

also the same as previously (which had been the largest percentage since March 31, 1998). 

In general, banks that were reported to have loosened

their underwriting practices showed greater levels of risk

than banks that were reported to have tightened them.

Likewise, banks that loosened their underwriting practices

since the previous examination also showed more frequent

occurrences of risky underwriting practices than the group

that tightened underwriting practices. 

1The proportion of FDIC-supervised banks that materially changed

underwriting practices since the previous examination equaled 12 percent.

The proportion that had tightened underwriting practices plus the proportion

that had loosened do not add to the total proportion that changed underwriting practices because of rounding.

OCTOBER 2000 THROUGH MARCH 2001

HIGHLIGHTS

For the six months ending March 31, 2001, the results showed the following changes in underwriting practices

at FDIC-supervised banks, compared with the six months ending September 30, 2000:

l Increases in the frequency of three risky underwriting practices for construction lending. Examiners reported a

larger proportion of banks that made: (1) speculative construction loans (those not accompanied by meaningful

pre-sale, pre-lease or take-out commitments), (2) loans with deferred interest payments during the construction

term, and (3) loans that funded 100 percent of the cost of construction and land, with no cash equity on the part

of the borrower/developer.

l Increases in the frequency of risky underwriting practices for consumer lending. Examiners reported a larger

proportion of banks that made: (1) loans to borrowers who lacked demonstrable ability to repay and (2)

“secured” consumer loans without adequate collateral protection.

l Less frequent occurrences of risky underwriting practices in the remaining major loan categories. Examiners

reported that the frequency of risky underwriting practices fell for business, commercial (nonresidential) real

estate, agriculture, home equity, and credit card lending.

l Decreases in risks and less frequent occurrences of most risky underwriting practices for general underwriting

practices. Examiners reported a smaller proportion of banks with high risk in current underwriting practices and

in overall loan portfolios. They also reported a smaller proportion of banks that made loans in which the actual

practices differed from written loan policies.

Division of Research and Statistics

Virginia Olin (202) 898-8711

Internet address: World Wide Web, www.fdic.gov

Division of Supervision

Robert W. Walsh (202) 898-6911 

9

10 10

11 11

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

2

4

6

8

10

Proportion

Looser Tighter

Note: May not add to the proportion that materially changed 

underwriting practices because of rounding.

Six months ending . . .

Proportion of FDIC-Supervised Banks That Materially

Changed Underwriting Practices since the Previous

Examination, by Direction of Change 

Report on Underwriting Practices Report on Underwriting Practices Report on Underwriting Practices

Federal Deposit Insurance Corporation Donna Tanoue, Chairman
The main reasons for the loosening of underwriting

practices (according to examiners) were competition and/or

growth goals; the main reasons for the tightening were a

need to respond to regulatory observations and/or a change

in management.

During the six months ending March 31, 2001, the proportion of banks with “high” risk associated with the institution’s current underwriting practices decreased slightly,

from 5 percent to 4 percent.

Examiners commented about the following deficiencies

in institutions with “high” risk in underwriting practices:

(1) weak underwriting standards in general, (2) inadequate

loan policies, (3) inadequate loan documentation, (4) inadequate financial analyses, and (5) poor management.

The proportion of banks with “high” potential credit risk

in their loan portfolios also decreased from 5 percent to 4

percent. 

Although the proportion of banks with “high” risk associated with purchased loan participations remained the

same (2 percent), examiners reported an increase in the

proportion with “medium” risk—from 19 percent to 24 percent. Examiners noted that one reason for the increased

risk was inadequate loan documentation.

The proportion of banks that engaged in out-of-area

lending either “frequently enough to warrant notice” (hereinafter, “frequently”) or “commonly or as standard procedure” (hereinafter, “commonly”) also increased from the

previous six months, but only slightly (from 14 percent to

15 percent). 

Other changes for FDIC-supervised banks during the six

months ending March 31, 2001, compared with the six

months ending September 30, 2000, included decreases in

the proportions of banks in the following categories:

l Those with “high” risk associated with loan growth

and/or with significant changes in lending activities

(from 5 percent to 3 percent)

l Those that either “frequently” or “commonly” made

loans in amounts that resulted in—or contributed

to—concentrations of credit to one borrower or

industry (from 23 percent to 21 percent)

l Those that either “frequently” or “commonly” made

loans with actual lending practices that differed from

written loan policies (from 26 percent to 22 percent).

Of the 1,181 banks examined, 218 (19 percent) used a

credit scoring model for credit decisions; the model was

used most frequently (118 banks) for consumer installment

lending. Eighteen percent used a credit scoring model during the six months ending September 30, 2000.

INDIVIDUAL LOAN CATEGORIES

During the six months ending March 31, 2001, of the

1,181 banks examined, 1,009 were active in business lending, 915 in consumer lending (excluding credit cards), and

814 in commercial (nonresidential) real estate lending.

Nineteen banks were not active in any of the major loan categories covered. The accompanying chart shows the number of banks for each major loan category.

Examiners are also asked to report activity in any other

loan category not listed in the chart above.2 Only 266

banks examined had activity in additional loan categories,

with the largest number (130) having dealer paper loans. 

During the six months ending March 31, 2001, examiners reported increases in the frequency of risky underwriting practices for both construction and consumer lending.

In the remaining major loan categories covered in the ques3

4

3

5

4

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

1

2

3

4

5

Proportion

Six months ending . . .

Proportion of FDIC-Supervised Banks with “Medium”

Risk Associated with Loan Participations Purchased

Proportion of FDIC-Supervised Banks with “High” 

Credit Risk in Their Overall Loan Portfolios

2 The section “Purpose and Design of the Report” lists additional loan categories.

3

4

3

5

4

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

1

2

3

4

5

Proportion

Six months ending . . .

Proportion of FDIC-Supervised Banks with “High” Risk

Associated with Current Underwriting Practices

19

21 20 19

24

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

5

10

15

20

25

Proportion

Six months ending . . .

Report on Underwriting Practices 2 March 2001
tionnaire, however, examiners reported less frequent occurrences of risky underwriting practices compared with the

six months ending September 30, 2000.

Construction Loans

For banks active in making construction loans, the frequency of three risky underwriting practices increased during the six months ending March 31, 2001, compared with

the previous six-month period. The proportion of banks

that either “frequently” or “commonly” made speculative

construction loans (that is, projects without meaningful presale, pre-lease or take-out commitments) rose from 26 percent to 29 percent. 

In addition, the proportion of banks that either “frequently” or “commonly” funded, or deferred, interest payments during the terms of their commercial construction

loans rose—from 15 percent to 17 percent. All the increase

was a result of the rise (from 5 percent to 8 percent) in the

proportion doing so “commonly.” (The proportion doing

so “frequently” decreased from 10 percent to 9 percent.)

And the proportion of banks that either “frequently” or

“commonly” funded 100 percent of the cost of construction

and land, with no cash equity on the part of the borrower/developer, increased slightly, from 12 percent to 13 percent. However, the percentage doing so “commonly”

increased from 1 percent to 4 percent. (The percentage

doing so “frequently” decreased from 11 percent to 8 percent.)

In contrast, for the banks that either “frequently” or

“commonly” made construction loans, the frequency of

risky practices for the following underwriting practices

remained the same: (1) making construction loans without

consideration of repayment sources other than the project

being funded—13 percent during both periods; (2) failing

to take appropriate steps to verify the quality of alternative

repayment sources when such sources are required—also

13 percent during both periods; and (3) failing to use realistic appraisal values relative to the current economic environment and/or to the performance observed on similar

credits—12 percent during both periods.

Consumer Loans (Excluding Credit Card

Lending)

For FDIC-supervised banks active in consumer lending

(excluding credit card loans), the proportion of banks that

either “frequently” or “commonly” made loans to borrowers who lack demonstrable ability to repay increased from

18 percent to 20 percent during the six months ending

March 31, 2001. 

And the proportion of banks that either “frequently” or

“commonly” made “secured” consumer loans without adequate collateral protection increased slightly, from 14 percent to 15 percent. All the increase was in the proportion

that did so “frequently.” 

Business Loans

The frequency of specific risky underwriting practices in

business lending changed slightly during the six months

ending March 31, 2001, compared with the six months ending September 30, 2000. The proportion of FDIC-supervised banks that either “frequently” or “commonly” made

business loans to borrowers who lacked documented financial strength to support such lending remained the same at

22 percent.

March 2001 3 Report on Underwriting Practices

Construction Loans

Loans Made on a Speculative Basis

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)

25 24 25 26

29

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

10

20

30

Proportion

Six months ending . . .

915

814

625

535

19

Business

Consumer

Nonresidential

Construction

Agricultural

Home Equity

Credit Card

None of the Above

Total Loans

0 200 400 600 800 1000 1200 1400

465

155

1,181

1,009

Number of FDIC-Supervised Banks Actively Making

Loans, by Loan Type

Responses Received 10/1/00 – 3/31/01

16 17 17 18

20

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

10

20

Proportion

Six months ending . . .

Consumer Loans

Loans Made to Borrowers Who Lack Demonstrable Ability to Repay

(Sum of the proportion of FDIC-supervised banks making such

loans either “frequently” or “commonly”)
The proportion that either “frequently” or “commonly”

made business loans without a clear and reasonably predictable repayment source declined slightly, from 15 percent to 14 percent, and the proportion that either

“frequently” or “commonly” failed to monitor the collateral pledged on asset-based loans (a subset of business lending) also decreased slightly, from 21 percent to 20 percent.

Commercial (Nonresidential) Real Estate

Loans

For commercial (nonresidential) real estate lending, the

frequency of specific risky underwriting practices declined

compared with the previous six months. Of the FDICsupervised banks actively making such loans, 15 percent

either “frequently” or “commonly” made short-term commercial real estate loans with minimal amortization terms

and large “balloon” payments at maturity, down from 18

percent previously. 

Ten percent (down from 12 percent) either “frequently”

or “commonly” made commercial real estate loans without

consideration of repayment sources other than the project

being funded; 9 percent (down from 11 percent) either “frequently” or “commonly” made loans without using realistic appraisal values relative to the current economic

environment and/or to the performance observed on similar

credits; and 6 percent (down from 8 percent) either “frequently” or “commonly” made interest-only, extendedamortization, or negative-amortization permanent

commercial real estate loans.

Agricultural Loans

For FDIC-supervised banks active in agricultural lending, for the third consecutive six-month period examiners

reported a decrease in the proportion having a “moderate”

or a “sharp” increase in the bank’s level of carryover debt.

The decrease this period was from 26 percent to 21 percent.

In general, examiners noted slight or no changes in the

frequency of risky practices for agricultural lending at

FDIC-supervised banks that were actively making agricultural loans. For example, 10 percent (down from 13 percent) either “frequently” or “commonly” made agricultural

loans on the basis of land values that cannot be supported

by farm operations. Forty-four percent (unchanged) either

“frequently” or “commonly” had portfolios tied to crops

affected by the Federal Agricultural Improvement and

Reform Act of 1996.3 And 11 percent (unchanged) either

“frequently” or “commonly” made agricultural loans on the

basis of unrealistic cash flow projections. 

Home Equity Loans

Of the FDIC-supervised banks that were active in home

equity lending, a smaller proportion were making home

equity loans that pushed mortgage indebtedness above 90

percent of collateral value. Specifically, 10 percent either

“frequently” or “commonly” made such loans compared

with 13 percent previously.

One percent of banks (down from 3 percent) either “frequently” or “commonly” qualified borrowers for home

equity credit on the basis of initially discounted (teaser)

loan rates.

32

42

33

26

21

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

20

40

Proportion

Six months ending . . .

Agricultural Loans

(Sum of the proportion of FDIC-Supervised Banks Having

a “Moderate” or a “Sharp” Increase in Carryover Debt)

16

18 17 18

15

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

10

20

Proportion

Six months ending . . .

19 20 20

22 22

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

10

20

Proportion

Six months ending . . .

Business Loans

Loans Made to Borrowers Who Lacked Documented

Financial Strength to Support Such Lending

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)

Commercial (Nonresidential) Real Estate

Loans Made with Minimal Amortization Terms and Large

“Balloon” Payments at Maturity

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)

3 In contrast to previous law, which allowed traditional subsidies tied to

prices and limits on production, this law allowed declining payments to farmers until the year 2002 for certain crops.

Report on Underwriting Practices 4 March 2001
March 2001 5 Report on Underwriting Practices

Credit Card Loans

Few FDIC-supervised banks were making new credit

card loans. One percent of banks active in new credit card

lending (unchanged) had “high” risk in current underwriting practices for new credit card loans. Three percent (up

slightly from 2 percent) had “high” risk associated with the

bank’s credit card portfolio. Examiners were concerned

with the level of subprime credit card lending at these

banks.

Purpose and Design of the Report

In early 1995, the FDIC began to require that a supplementary examination questionnaire on current underwriting

practices at FDIC-supervised banks be filled out at the end

of each FDIC-supervised bank examination. The questionnaire focuses on three topics: material changes in underwriting practices for new loans, the overall degree of risk in

underwriting practices for new loans, and the frequency of

specific risks in underwriting practices within major categories of loans (business, consumer, commercial [nonresidential] real estate, agricultural, construction, home equity,

and credit card loans). Examiners are also asked to report

whether the institution is active in additional loan categories (unguaranteed portions of Small Business

Administration [SBA] loans, subprime loans [automobiles,

mortgages], dealer paper loans, low- /no-document business loans, high loan-to-value ratio home equity loans [up

to 125%], or any category of loan not mentioned). The systematic collection and analysis of questionnaire responses

provides an early-warning mechanism for identifying

potential lending problems.

Examiners evaluate underwriting practices in terms of

FDIC supervisory practices. Until October 1, 1998, examiners were asked to rate the risk associated with a bank’s

underwriting practices in relative terms: “above average,”

“average,” or “below average.” Beginning October 1,

1998, examiners began rating the risk associated with a

bank’s underwriting practices in absolute terms: “low,”

“medium,” or “high.”4 New questions about underwriting

practices were also added to the questionnaire. Examiners

continue to classify the frequency of specific risky underwriting practices as “never or infrequently,” “frequently

enough to warrant notice,” or, if the risky practice is used

more often, “commonly or as standard procedure.”5

The questionnaire is completed at the end of each bank

examination the FDIC conducts. Which banks are included during a reporting period, therefore, depends on how the

FDIC schedules bank examinations. Examination schedules are heavily influenced by the financial condition of a

bank, with the examinations generally becoming more frequent the poorer a bank’s financial condition. In addition,

the FDIC shares examination authority of state-chartered

nonmember banks (those that are not members of the

Federal Reserve System) with state bank regulators. To

avoid excessive regulatory burden, the FDIC generally

alternates examinations with state regulators, and the latter

do not fill out questionnaires. Finally, examination schedules are affected by the availability of examination staff.

For these reasons the group of banks included in any given

report is not randomly selected and therefore may not be

representative of the population of FDIC-supervised banks.

To address the potential bias that examination scheduling might introduce into the report’s results, we statistically weight the responses. The weights are designed to make

questionnaire responses in the aggregate more reflective of

the population of FDIC-supervised banks. Simply put,

when we compute aggregate questionnaire responses, we

give greater weight to FDIC-supervised banks that are

“underrepresented” in the questionnaire (when compared

with the population of FDIC-supervised banks) and less

weight to “overrepresented” groups.6 Although these

weightings cannot remove all potential bias, they do allow

for more meaningful comparisons of results over time.

Nevertheless, we advise readers to interpret trends cautiously, for two reasons: (1) the lack of random selection of

banks for examination, as noted above, and (2) the small

number of responses for some loan categories.

Throughout this report, the proportions presented

refer to these weighted responses and are estimates of

the underwriting practices of all FDIC-supervised

banks in the nation. In addition, the data used to weight

responses in this report are subject to slight revisions, so

some of the weighted proportions might be revised in subsequent reports. We expect no substantive changes, however.

4 Low: The level of risk imposed on the institution does not warrant

notice by bank supervisors even when factors that might offset the risk are

ignored. Medium: The level of risk should be brought to the attention of

bank supervisors. There may or may not be factors that offset the risk imposed

on the institution; however, the level of risk raises concerns when considered

apart from these offsetting factors. High: The level of risk is high and therefore should be brought to the immediate attention of bank supervisors. There

may or may not be factors that offset the risk imposed on the institution; however, the level of risk is high when viewed in isolation.

5 Never or infrequently: The institution does not engage in the practice,

or does so only to an extent that does not warrant notice by bank supervisors.

Frequently enough to warrant notice: The institution engages in the practice often enough for it to be brought to the attention of bank supervisors.

There may or may not be factors that offset the risks the practice imposes on

the institution. Commonly or as standard procedure: The practice is either

common or standard at the institution and therefore should be brought to the

attention of bank supervisors. There may or may not be factors that offset the

risks the practice imposes on the institution.

6 Anyone who wishes more information about the weights should contact

Virginia Olin, DRS, 202/898-8711.

9

11

12 13

10

3/31/99 9/30/99 3/31/00 9/30/00 3/31/01

0

5

10

15

Proportion

Six months ending . . .

Home Equity Loans

Loans Made with Greater than 90% Collateral Value

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)
Report on Underwriting Practices 6 March 2001

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

2 Prior to October 1998, responses were “rarely”, “to some degree”, or “commonly.” 

GENERAL UNDERWRITING PRACTICES 

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

If practices have materially changed, are they:1

How would you characterize the risk associated with

loan growth and/or significant changes in lending

activities since the last examination: 

RISK IN CURRENT PRACTICES 

How would you characterize the potential risk associated with the institution’s current UW practices: 

How would you characterize the potential credit risk

of the institution’s overall loan portfolio: 

How would you characterize the potential risk in

underwriting practices associated with loan participations purchased by the institution: 

To what extent has recent lending been made in

amounts that resulted in—or contributed to—

concentrations of credit to one borrower or industry:

To what extent is the institution currently engaged in

out-of-area financing: 

How would you characterize the risk associated with

loan administration: 

To what degree does the institution fail to adjust its

loan pricing on different quality loans to reflect differences in risk:2

To what extent does the institution fail to require a

material principal reduction before renewing term

loans:2

To what extent do the institution’s written lending

policies differ from actual practices: 

BUSINESS LOANS 

To what extent does the institution make business

loans without a clear and reasonably predictable

repayment source: 

To what extent does the institution make business

loans to borrowers who lack documented financial

strength to support such lending: 

With respect to asset-based business loans, to what

extent does the institution fail to monitor collateral: 

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): 

To what extent are construction loans made without

consideration of repayment sources other than the

project being funded: 

When alternative repayment sources are required,

to what extent does the institution fail to take appropriate steps to verify the quality of these sources: 

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: 

To what extent does the institution fund, or defer,

interest payments during the term of its commercial

construction loans: 

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

(Weighted)

Six-Month Period Ending:

3/99 9/99 3/00 9/00 3/01

Yes 9.3 10.6 9.8 11.6 11.6 

No 90.7 89.4 90.3 88.4 88.4

Substantially tighter 0.9 1.1 1.1 1.4 1.2 

Moderately tighter 4.3 4.1 3.1 3.6 3.9 

Moderately looser 3.1 4.3 4.4 4.7 5.2

Substantially looser 1.0 1.1 1.1 1.8 1.2

Low 55.1 54.3 55.4 52.5 51.3 

Medium 28.8 28.9 28.6 29.3 31.2 

High 3.9 4.1 2.3 4.8 3.3 

Insignificant 12.2 12.7 13.8 13.4 14.2 

Low 65.0 66.4 67.7 65.3 64.7 

Medium 31.8 29.9 29.7 30.2 31.2 

High 3.3 3.7 2.7 4.6 4.2 

Low 66.5 66.7 68.3 66.1 65.6 

Medium 30.4 29.0 29.0 29.1 30.1 

High 3.1 4.3 2.7 4.7 4.3

Low 79.7 77.4 78.4 78.8 74.5 

Medium 19.4 21.1 20.2 19.2 23.6 

High 0.8 1.6 1.3 2.1 2.0

Never or infrequently 80.0 78.6 79.5 77.0 79.4 

Frequently enough to warrant notice 12.9 13.9 14.1 16.3 14.3 

Commonly or standard procedure 7.1 7.5 6.4 6.7 6.4 

Never or infrequently 89.2 87.1 88.2 85.9 84.6 

Frequently enough to warrant notice 8.3 9.8 9.5 11.3 12.7 

Commonly or standard procedure 2.5 3.1 2.4 2.9 2.7

Low 64.5 63.1 65.5 62.1 63.4 

Medium 30.8 31.6 31.2 32.3 31.0 

High 4.7 5.3 3.4 5.6 5.6 

Never or infrequently 89.4 86.2 87.8 87.6 87.6 

Frequently enough to warrant notice 8.1 11.4 10.5 10.2 10.0 

Commonly or standard procedure 2.6 2.5 1.8 2.3 2.4 

Never or infrequently 76.2 75.7 76.7 77.4 78.6 

Frequently enough to warrant notice 20.2 20.9 20.8 19.3 18.8 

Commonly or standard procedure 3.6 3.4 2.5 3.3 2.7 

Never or infrequently 79.8 77.5 78.1 74.1 77.6 

Frequently enough to warrant notice 17.1 19.4 19.0 22.2 18.7 

Commonly or standard procedure 3.1 3.1 2.9 3.7 3.7 

Never or infrequently 82.9 84.1 85.1 85.1 86.4 

Frequently enough to warrant notice 13.8 13.8 13.5 13.8 12.4

Commonly or standard procedure 3.3 2.0 1.4 1.1 1.2 

Never or infrequently 81.0 80.4 79.9 77.9 78.4 

Frequently enough to warrant notice 16.6 17.8 18.6 20.2 19.8 

Commonly or standard procedure 2.3 1.8 1.6 1.9 1.8 

Never or infrequently 77.7 78.6 80.6 79.2 80.0 

Frequently enough to warrant notice 19.5 19.0 17.3 19.4 16.8 

Commonly or standard procedure 2.7 2.4 2.2 1.4 3.2 

Never or infrequently 75.2 76.1 75.2 73.6 70.7 

Frequently enough to warrant notice 19.4 20.1 20.4 21.9 23.1 

Commonly or standard procedure 5.4 3.9 4.4 4.5 6.2 

Never or infrequently 87.3 88.1 88.0 87.4 86.7 

Frequently enough to warrant notice 11.6 10.5 10.5 10.7 10.8 

Commonly or standard procedure 1.1 1.5 1.4 2.0 2.5 

Never or infrequently 88.0 87.9 87.7 87.5 87.4 

Frequently enough to warrant notice 11.3 9.5 11.1 10.6 10.5 

Commonly or standard procedure 0.8 2.5 1.1 1.9 2.1 

Never or infrequently 89.8 87.9 89.5 87.7 88.3 

Frequently enough to warrant notice 9.9 11.2 9.6 10.8 10.6 

Commonly or standard procedure 0.3 0.9 0.9 1.5 1.1 

Never or infrequently 83.9 87.1 86.0 85.2 83.5 

Frequently enough to warrant notice 10.2 9.7 7.9 9.6 8.8 

Commonly or standard procedure 5.9 3.2 6.1 5.2 7.8 
CONSTRUCTION LOANS (cont.)

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: 

NONRESIDENTIAL LOANS 

To what extent are commercial real estate loans

made without consideration of repayment sources

other than the project being funded: 

To what extent does the institution make interestonly, extended amortization, or negative amortization permanent commercial real estate loans: 

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: 

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: 

HOME EQUITY LOANS 

To what extent does the institution make home equity loans that push mortgage indebtedness above 90

percent of collateral value: 

To what extent does the institution qualify borrowers for home equity credit based on initially-discounted loan rates: 

AGRICULTURAL LOANS 

To what extent does the institution make agricultural loans on the basis of land values that cannot be

supported by farm operations: 

To what extent is the institution’s agricultural loan

portfolio tied to major crops affected by the phase

out of farm subsidies: 

To what extent are agricultural loans being made

based on unrealistic cash flow projections: 

How would you characterize the change in the level

of the institution’s agricultural related carryover

debt since the last examination: 

CONSUMER LOANS 

To what extent does the institution make ‘secured’

consumer loans without adequate collateral protection: 

To what extent does the institution make consumer

loans to borrowers who lack demonstrable ability to

repay: 

CREDIT CARD LOANS 

Have the institution’s underwriting practices for

new credit card loans materially changed since the

last examination: 

Are underwriting practices for new credit cards:1

How would you characterize the level of risk associated with the institution’s current underwriting

practices for new credit card loans: 

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

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 88.4 88.8 88.8 87.7 87.5 

Frequently enough to warrant notice 9.7 10.8 9.7 11.0 8.8 

Commonly or standard procedure 1.9 0.4 1.6 1.4 3.8 

Never or infrequently 88.9 87.7 88.7 87.7 90.3 

Frequently enough to warrant notice 8.9 10.5 10.2 10.6 8.2 

Commonly or standard procedure 2.2 1.8 1.1 1.7 1.5 

Never or infrequently 93.4 93.4 92.7 92.5 94.0 

Frequently enough to warrant notice 6.5 5.9 6.9 6.8 5.1 

Commonly or standard procedure 0.1 0.7 0.5 0.7 0.9 

Never or infrequently 83.9 81.8 83.0 82.2 84.8 

Frequently enough to warrant notice 12.9 15.3 13.9 15.0 11.4 

Commonly or standard procedure 3.2 2.9 3.1 2.9 3.8 

Never or infrequently 92.1 90.1 91.4 88.7 90.9 

Frequently enough to warrant notice 7.7 9.5 8.2 10.1 8.5 

Commonly or standard procedure 0.1 0.4 0.4 1.2 0.6 

Never or infrequently 91.0 89.3 88.3 86.6 90.5 

Frequently enough to warrant notice 5.5 9.3 9.2 9.9 7.7 

Commonly or standard procedure 3.5 1.4 2.5 3.5 1.8 

Never or infrequently 98.0 98.1 99.0 97.3 98.7 

Frequently enough to warrant notice 1.8 1.3 0.4 2.1 1.1 

Commonly or standard procedure 0.2 0.5 0.6 0.7 0.2 

Never or infrequently 87.8 86.0 85.7 87.3 90.1 

Frequently enough to warrant notice 10.6 11.9 13.1 11.6 8.0 

Commonly or standard procedure 1.7 2.1 1.2 1.1 2.0 

Never or infrequently 58.6 55.0 54.6 55.6 55.9 

Frequently enough to warrant notice 23.0 22.8 24.7 23.0 20.3 

Commonly or standard procedure 18.4 22.2 20.7 21.4 23.8 

Never or infrequently 85.7 84.5 86.3 89.5 88.8 

Frequently enough to warrant notice 13.0 14.3 12.2 9.8 9.8 

Commonly or standard procedure 1.3 1.2 1.5 0.7 1.4 

Sharp decline 1.6 2.0 3.1 1.9 1.6 

Moderate decline 9.6 7.0 11.3 13.7 14.0 

No change 56.4 48.7 52.7 58.4 63.4 

Moderate increase 29.0 37.2 31.0 25.1 19.7 

Sharp increase 3.4 5.1 2.0 1.0 1.3

Never or infrequently 86.5 85.0 85.7 86.3 85.4 

Frequently enough to warrant notice 10.9 13.1 12.1 11.9 13.1 

Commonly or standard procedure 2.6 1.9 2.2 1.8 1.6 

Never or infrequently 83.7 83.3 83.1 82.4 80.0 

Frequently enough to warrant notice 13.9 14.7 14.4 15.4 17.5 

Commonly or standard procedure 2.5 2.0 2.5 2.2 2.4 

Yes 9.2 6.4 2.1 2.1 2.5 

No 90.9 93.6 97.9 97.9 97.5 

Substantially tighter 1.3 0.8 0.7 1.2 1.4 

Moderately tighter 7.2 3.3 0.5 0.5 1.1 

Moderately looser 0.0 1.5 1.0 0.0 0.0

Substantially looser 0.7 0.9 0.0 0.3 0.0

Low 74.4 72.6 80.1 78.5 77.7 

Medium 24.7 24.2 18.5 20.0 21.5 

High 0.9 3.2 1.4 1.5 0.9 

Low 76.5 74.4 79.5 78.3 75.5 

Medium 23.5 22.5 19.7 19.8 21.9 

High 0.0 3.1 0.9 1.8 2.7 

Never or infrequently 0.0 84.4 100.0 60.0 74.7 

Frequently enough to warrant notice 0.0 15.6 0.0 40.0 0.0 

Commonly or standard procedure 0.0 0.0 0.0 0.0 25.3 

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

March 2001 7 Report on Underwriting Practices

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

Weighted

Six-Month Period Ending:

3/99 9/99 3/00 9/00 3/01
Characteristics of Banks Examined in the

Report on Underwriting Practices

l Coverage: 1,181 FDIC-supervised banks.

l Period: Reports filed between October 1, 2000, and March 31, 2001.

l Charter types: 100 percent of the examined banks during this period were state-chartered commercial banks.

l Size distribution of banks: assets of $1 billion or greater, 4 percent; assets between $300 million and $1 billion, 11 percent; assets between $25 million and $300 million, 69 percent; assets less than $25 million, 16 percent.

The Report on Underwriting Practices Seeks

l To identify material changes in underwriting practices, (2) overall risk in new lending practices, and (3)

specific risks in underwriting practices for major loan categories.

l To track emerging issues in underwriting practices of new loans.

l To provide an early-warning mechanism for identifying potential problems.