Bankers See Improved Mortgage Quality Ahead

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2 · 04 · 14

A significant share of bankers expect the quality of residential and commercial real estate loans to improve in 2014. Although demand for residential products has fallen, stronger demand was noted for commercial mortgages.

On residential loans considered to be prime, nearly 82 percent of banks have basically maintained the same guidelines between October and January. Although nearly 9 percent have tightened standards somewhat, an equal share somewhat eased standards.

Even though a majority of the banks that make prime mortgages expect no changes in the quality of such loans this year, 48 percent forecast an improvement.

Those were the findings of the January 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices published by the Federal Reserve System.

The report addressed changes in bank lending practices over the prior three months. Responses were obtained from 75 domestic banks and 21 U.S. branches and agencies of foreign banks — though the numbers in this story reflect domestic responses.

Demand for prime mortgages had fallen since October at 48 percent of the 71 banks that make them. Demand was about the same at nearly a third and moderately stronger at 20 percent.

Lending standards on home-equity lines of credit were basically unchanged at 89 percent of the 71 banks that offer such programs. Standards eased somewhat at 7 percent of the group.

Among HELOC lenders, 52 percent expect loan quality to hold at current levels. But 41 percent predict improvement, and just 7 percent see HELOC quality deteriorating.

At the same time, HELOC demand was essentially the same at 63 percent of banks, while 20 percent of survey participants noted a decline in demand and 17 percent indicated that there was an increase.

Qualifications for nontraditional mortgages — including Alt-A loans, hybrid adjustable-rate mortgages and loans secured by investor properties — were unchanged at nearly three-quarters of the 35 banks that originate such products. But more than 17 percent tightened standards, and less than 9 percent eased them.

More than half — 54 percent — of nontraditional lenders indicated demand has fallen. Another 37 percent reported no change in demand, and less than 9 percent reported an increase in demand.

Over 58 percent of banks see nontraditional loan quality staying at current levels, and 42 percent predict improvement ahead.

Out of the five banks that make subprime home loans, four left guidelines unchanged and one tightened its guidelines.

Four of the banks project that subprime loan quality will not change, and two predict improvement.

Subprime demand was lower at two institutions, the same at another two and higher at one bank.

Credit standards on CRE loans were mostly unchanged at 88 percent of banks, while 9 percent had somewhat eased requirements. Commercial mortgages were part of the programs at 75 financial institutions.

CRE loan quality is expected to remain the same at 60 percent of banks and improve at 40 percent.

More than two-thirds of loan officers reported no change in CRE demand. But 31 percent said demand was stronger.

On multifamily loans, 16 percent of the 74 banks that make them made qualifications somewhat easier. No change was noted by nearly three quarters, and 10 percent indicated that guidelines were tightened.

The outlook for multifamily loan quality is for no change at 76 percent of respondents. Another 20 percent see an improvement ahead.

Apartment loan demand was unchanged at 61 percent of banks and stronger at 31 percent. Just 8 percent indicated demand was weaker.

On construction-and-land-development loans, which 74 banks indicated they do, 84 percent said there were no changes in credit standards, while 12 percent indicated that they had eased standards somewhat.

Although a majority of banks see no change ahead for C&D loan quality, 47 percent expect an improvement.

While 64 percent of lending officers said C&D demand hadn’t changed, nearly a third said demand picked up moderately.


Mortgage Daily Staff


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