Mortgage Demand Down in Latest Quarter, Terms Tighten

A survey of bankers from nearly 100 institutions turned up mixed numbers for credit standards and loan demand in the last three months.

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The ""Federal Reserve"":http://www.federalreserve.gov/ released Monday its January 2014 ""Senior Loan Officer Opinion Survey"":http://www.federalreserve.gov/boarddocs/snloansurvey/201402/fullreport.pdf, a poll examining changes in lending standards and demand in the latest quarter. The January report's results include responses from 75 domestic banks and 21 U.S. branches and agencies of foreign banks.

According to the findings, a very small net percentage of banks tightened lending standards on prime residential mortgages over the last few months, with 1.4 percent saying standards have ""tightened considerably."" The share of banks who either tightened or eased standards ""somewhat"" offset each other at 8.5 percent each, while the majority--81.7 percent--reported no change.

Looking at bank size, 16.7 percent of large banks reported easing standards, while a combined 5.6 percent tightened [COLUMN_BREAK]

their criteria. Among smaller banks, 14.3 percent reported tighter standards, and none reported easing.

Of the few banks offering subprime mortgages, 20 percent tightened standards, while 80 percent left them alone.

A survey released ""late January"":https://themreport.com/articles/underwriting-standards-ease-as-banks-vie-for-business-2014-01-31 from the Office of the Comptroller of the Currency indicated more banks last year were easing standards to stay competitive. However, the period covered in that survey ended in June.

Whether it was because of higher hurdles to clear or last year's rise in interest rates, a moderate fraction of banks reported a drop in demand for prime purchase mortgages, with a combined 47.9 percent saying demand was weaker. Only 19.7 percent saw greater consumer interest in prime residential loans; the remaining 32.4 percent said demand was ""about the same.""

Demand for home equity lines of credit (HELOCs) was little changed, with 16.9 percent of banks reporting stronger demand and 19.7 reporting weaker demand. On net, more banks reported easing HELOC standards than tightening (7.0 percent compared to 4.2 percent).

In a special question posed for January's survey, the Fed asked banks about their expectations for loan delinquency and charge-off rates over the next year, assuming economic activity moves in line with consensus forecasts.

Reponses indicate most banks have higher expectations for loan quality this year. On net, 46.5 percent of banks surveyed expect quality to improve somewhat for prime residential mortgages, while 33.3 percent said subprime loan quality should improve.

For HELOCs, a net 33.4 percent of respondents said loan quality is likely to improve this year.