Fed Survey Finds Mortgage Demand Picks Up; Credit Also Loosening

Banks reported stronger demand for mortgage loans and eased lending standards in a number of categories, suggesting positive growth in the second half of the year, according to the Federal Reserve July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices.

The survey reviewed bank standards and terms as well as demand for bank loans to businesses and households over the past three months from the responses of 71 domestic banks and 23 U.S. branches and agencies of foreign banks.

According to the Fed survey, some of the banks surveyed reported issuing loans to households under eased lending standards for residential mortgage loans over the past three months on net. However, the majority of these banks most banks did not indicate any change in consumer loan standards and terms.

Demand also saw a sharp increase across most home-purchase loans categories, the Fed reported. "On the demand side, moderate to large net fractions of banks reported stronger demand across most categories of home-purchase loans," the survey said.

"On the demand side, moderate to large to net fractions of banks reported stronger demand across most categories of home-purchase loans," the survey said. "On balance, lending standards were reportedly little changed for home equity lines of credit (HELOCs), and demand for such loans strengthened."

The survey noted that "moderate fractions" of banks continued to report that the levels of standards for all types of residential real estate (RRE) loans and consumer loans to subprime borrowers were at least somewhat tighter than the midpoints of their bank's longer-term ranges, despite shifts toward somewhat more accommodative credit policies for most types of loans to households over the past few years.

A small portion of the banks surveyed noted that they had eased underwriting standards on residential mortgages, the Fed says. In the government-insured and subprime categories, more banks indicated that they had eased their underwriting standards.

The easing was more prominent for jumbo residential mortgages that conform to the Consumer Financial Protection Bureau's qualified mortgage rules, the survey found. The vast majority of banks continued to report that they do not allow subprime borrowers to obtain home-purchase loans.