Loan Officer Survey Shows ‘Moderate’ Easing in Credit Standards

Lending standards for prime mortgage loans eased slightly over the past three months--but consumers aren't as interested, according to a survey released ""Monday"":http://www.federalreserve.gov/boarddocs/snloansurvey/201311/fullreport.pdf by the ""Federal Reserve"":http://www.federalreserve.gov/.

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On net, a ""moderate fraction"" of banks polled in the Fed's Senior Loan Officer Survey reported easing standards on prime residential mortgages from August to October, with a net 8.8 percent saying credit standards have ""eased somewhat."" Among large banks, a net 26.5 percent reported somewhat looser standards.

For non-traditional mortgages, standards were largely unchanged. The Fed didn't receive enough responses related to subprime mortgages to ascertain credit conditions.

Meanwhile, however, demand has declined for both prime and nontraditional mortgages as mortgage rates bounce upward. Among all respondents, a net 7.2 percent reported moderately or substantially weaker demand for [COLUMN_BREAK]

prime mortgages over the last few months, while 15.1 percent reported weakened demand for nontraditional loans.

For the October survey, the Fed also included a number of special questions regarding the steady climb in mortgage rates that started in May. On net, ""a moderate fraction of large banks and a modest fraction of small banks"" reported seeing lower application volume for purchase loans since the spring, and more than 90 percent of respondents said ""they have recently received moderately to substantially lower volumes of refinancing applications"" compared to earlier this year.

As a result, the majority of banks have reduced their processing time for purchase applications and increased marketing efforts related to those products--though ""very few banks reported having reduced origination and processing fees, or minimum required down payments and FICO scores for approving home-purchase loan applications,"" the Fed said.

Shifting to commercial real estate (CRE) lending, the October 2013 asked questions separately for the three major loan categories: construction and land development loans, loans secured by nonfarm nonresidential structures, and loans secured by multifamily residential structures.

According to loan officer responses, ""[s]mall net fractions of banks reported that they had eased standards on each of the three categories ... with the largest number of banks indicating having eased standards on loans secured by multifamily loan structures.""

""Moderate net fractions"" of banks said they have experienced stronger demand for CRE loans across all categories.