Mortgage Demand Down as Lending Standards Steady

Mortgage credit standards remained largely unchanged over the past three months as demand weakened overall, according to a report from the Federal Reserve.

The Fed's Senior Loan Officer Opinion Survey, which covers a three-month period ending in October, shows credit standards on prime mortgages remained basically steady at 83 percent of reporting banks over the last few months. Of the nearly 14 percent that reported easing their lending criteria somewhat, the vast majority were large banks with assets of $20 billion or more, with only one smaller institution dialing down its standards.

Only about 3 percent of banks indicated tighter criteria compared to the last survey, all of which were classified as smaller companies.

The numbers were largely the same for subprime and jumbo/non-traditional mortgages. Of the handful of banks that currently originate subprime loans, two-thirds said they kept credit standards unchanged, while the remainder were split between somewhat tighter and somewhat weaker criteria.

The survey's results reinforce a frequently cited challenge in the current mortgage market, which analysts say caters mostly to borrowers with near-pristine credit and excludes those with fair or even good profiles.

On net, demand for all mortgage types weakened, though changes were mixed in each category. For prime loans, 19.4 percent reported moderately stronger demand, while 20.8 percent saw demand weaken moderately. Notably, the majority of banks experiencing increased demand for mortgages were smaller institutions, leaving larger banks fighting over a smaller share of business.

The remaining 59.7 percent of surveyed banks reported no significant change in demand.

For subprime mortgages, 83.3 percent of banks said they saw no change in demand, while one reported a slight weakening. Likewise, more than a quarter of banks said demand for non-traditional mortgages weakened, with only about 6 percent saying demand was moderately stronger.