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Banks Report Looser Credit Standards, Increased Demand

A ""survey of senior loan officers"":http://federalreserve.gov/boarddocs/snloansurvey/201210/default.htm released by the ""Federal Reserve"":http://www.federalreserve.gov/ shows slight easing of standards and strengthened demand for residential real estate loans.


The October survey asked 68 domestic banks and 23 U.S. branches of foreign institutions about the lending standards and loan demand they've dealt with over the past three months. According to the Fed, ""[r]espondents reported little change in residential real estate lending standards on balance. Significant fractions of banks reported a strengthening of demand for commercial real estate loans, residential mortgages, and auto loans, on balance.""

Regarding residential real estate lending, standards for both prime and nontraditional mortgages remained mostly unchanged for the past three months. When asked about credit standards for prime mortgages, 59 out of 64 respondents said standards were largely the same. Two banks reported that standards had ""tightened somewhat,"" while three said they had ""eased somewhat."" One respondent bank answered that it does not originate prime mortgages.

Responses for standards on nontraditional loans were split evenly. Twenty-one loan officers said their standards ""remained basically unchanged,"" while one bank each reported somewhat tighter or somewhat looser standards.

Only four banks said they originate subprime mortgages, and all of them reported basically unchanged credit standards.


Demand for residential mortgage loans continued to increase on net, ""although the fractions of banks that reported an increase in demand for both prime and nontraditional residential mortgage loans declined from their levels in the July survey.""

While 34 banks said demand for prime purchase mortgages was about the same, 21 reported ""moderately stronger"" demand, and four said demand was ""substantially stronger"" since July. Only four respondents saw ""moderately weaker"" demand.

For nontraditional mortgages, 17 banks experienced no change in demand, while 5 saw it strengthen somewhat. Two banks reported a decline in demand.

Demand for subprime mortgages did not change, banks reported.

While standards for mortgage loans eased a bit, they grew a little tighter for home equity lines of credit (HELOC). When asked about HELOC credit standards, 57 loan officers said standards were mostly unchanged, while two said they had eased somewhat. Six respondents said credit standards had tightened somewhat.

Demand for HELOC was mostly the same, with 45 banks seeing no change. Twelve said demand was moderately stronger, and eight said it was moderately weaker.

The survey also included special questions related to lending for mortgages insured by the Federal Housing Administration (FHA) and the banks' participation in the revised Home Affordable Refinance Program (HARP 2.0).

""[A] majority of domestic banks indicated that their lending standards for approving an application for an FHA-insured purchase mortgage were about the same as in 2006 for a borrower with a credit score of 660, but that standards had tightened for borrowers with lower FICO scores,"" the report says.

On the subject of HARP, ""banks continued to indicate that a material portion of refinance applications at their bank was attributable to"" the program-64.5 percent said at least 10 percent of their refinance activity in the last three months was HARP-related. Based on their prior experiences with HARP, 87.6 percent of respondents said they anticipate at least 40 percent of HARP applications will be approved and successfully completed.