Mortgage lending declined to its lowest level in 16 years in 2011 amid weak demand for mortgages and tighter lending standards, according to a report released by federal regulators Tuesday.

Banks funded about 7.1 million mortgages in 2011, down 10% from the year before, and the lowest tally since banks issued 6.2 million mortgages in 1995. The Federal Reserve analyzed data submitted by more than 7,600 lenders under the Home Mortgage Disclosure Act.

Loans...