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Banks Report Stronger Home-Loan Demand

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An increase in demand at banks for home loans was led by small and mid-sized banks. Big banks, meanwhile, were the only ones to ease lending guidelines. Nonprime and commercial mortgage lending has been mostly unchanged.

The demand for residential mortgages from prime borrowers has picked up, according to several of the respondents in the July 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board. Those surveyed included 57 domestic banks and 23 U.S. branches and agencies of foreign banks.

The improved demand contrasted the last report in April that indicated weakened demand.

The uptick was more pronounced at small- to mid-sized banks, where more than three-quarters reported the same or stronger demand compared to 56 percent for large banks. “Moderately weaker” demand was reported by nearly one-third of large banks versus about half that share at their smaller competitors.

A small share of banks, all large, eased credit standards on residential loans to prime borrowers.

While demand for nontraditional mortgages, which were originated by less than half of the respondents, picked up at a small portion of the banks — a similar share saw a decline. One-quarter of large banks saw weaker demand for nontraditional mortgages, while the figure was more like 17 percent for other banks.

Nontraditional borrowers include those with payment-option adjustable-rate mortgages, interest-only loans and Alt-A financing. Guidelines on nontraditional loans were mostly unchanged.

The share of banks that reported weaker home-equity line-of-credit demand was “down sharply from the April survey.” At smaller institutions, HELOC demand was weaker at around 22 percent of the respondents. But just 7 percent of big banks saw a decline. On the flip side, around 21 percent of the large banks saw stronger demand, compared to just 4 percent at other banks.

Even though a small portion of the institutions indicated approval standards for HELOCs had eased, about the same share cut the size of the lines.

Only three banks indicated that they originated subprime mortgages.

While the majority of those surveyed said demand for commercial mortgages was unchanged, 9 percent reported “moderately weaker” demand and 6 percent said demand was “moderately stronger.”

Most of the respondents indicated that they had not tightened or loosened their guidelines for commercial real estate loans and that demand was mostly unchanged.

“The July survey indicated that, on net, banks had eased standards and terms over the previous three months on loans in some categories, particularly those categories affected by competitive pressures from other banks or from nonbank lenders,” the report stated. “While the survey results suggest that lending conditions are beginning to ease, the improvement to date has been concentrated at large domestic banks.”

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