While banks haven’t tightened lending requirements during the past six years on government-insured mortgages made to borrowers with moderate-to-high credit scores, the story is different for borrowers with lower scores. Banks see a high closing ratio for applications generated through the enhanced Home Affordable Refinance Program. Commercial mortgage lending showed signs of improvement.
A “material” share of refinance applications taken during the past three months were the result of HARP 2.0, according to a survey of bank loan originators.
Around 20 percent of the banks expected at least 80 percent of their HARP 2.0 applications to close, and another 45 percent expected to close between 60 and 80 percent of applications.
The findings were discussed in the October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board.
The Fed surveyed 68 domestic banks and 23 U.S. branches and agencies of foreign banks for the report.
Two thirds of domestic banks said that approval standards on purchase-money mortgages that are insured by the Federal Housing Administration were roughly the same as they were in 2006 for borrowers with credit scores of 660.
But FHA standards were considered tighter by a majority of banks for borrowers with 620 credit scores, while three quarters of the respondents said they would be less likely to approve an FHA loan for borrowers with scores of 580.
Among the banks that would be less likely to approve an FHA loan today, many were concerned about repurchases, and some were worried that their compare ratios would hinder their ability to participate in FHA programs.
Respondents reported little change over the prior three months in residential real estate lending standards on prime mortgages. Even non-traditional guidelines hadn’t tightened — a contrast to the tightening reported in the year-earlier report.
Demand increased for home loans, though the share that indicated demand was stronger for both prime and non-traditional loans eased from the previous survey.
There wasn’t much difference from the July survey in demand and standards for home-equity lines of credit.
“On balance, a small fraction of domestic respondents to the October survey reported that standards on CRE loans had eased over the previous three months,” the report stated.” The fraction of banks that reported a strengthening of demand for CRE loans increased notably, moving to about 45 percent on net.”
