Diminishing Refis Do Little to Ease Credit Standards

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11 · 05 · 13

The decline in residential loan business that resulted from the recent increase in interest rates did little to convince bankers to loosen their purse strings.

Fifteen percent of banks have eased standards on prime mortgages over the past three months, though the share jumped to 27 percent for larger banks and fell to 3 percent for smaller banks.

The easing came as prime demand slowed at 36 percent of banks. But stronger demand was reported by 29 percent of banks.

The details were spelled out in the October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board.

A total of 73 domestic banks and 22 U.S. branches and agencies of foreign banks participated in the survey.

Demand fell over the three-month period for prime, non-traditional and subprime mortgages.

While 6 percent of banks said they tightened guidelines on non-traditional loans, a similar share said they had eased standards. Demand in this category fell at 30 percent of banks but was higher at 15 percent of those surveyed.

Nine percent of banks reported having eased their standards on home-equity lines of credit. Increased HELOC demand was reported by 22 percent of respondents, though 13 percent cited weaker demand.

Nearly 10 percent of banks were more likely to approve a loan to a borrower with a 620 FICO and a 10 percent downpayment than they were in the prior survey. When the downpayment was increased to 20 percent, the share who were more likely to approved fell to 9 percent.

With 30-year fixed rates averaging 100 basis points less than at the time of the previous survey, bankers were asked about how their residential business was impacted.

A “moderate fraction of large banks and a modest fraction of small banks” indicated that application volume had fallen since the Spring. But when it came to refinances, applications fell at 93 percent of banks.

Nearly half of banks responded to falling refinance activity by cutting processing times. But very few reported that they responded by reducing origination and processing fees or lowering the minimum required downpayments and FICO scores.

Nearly half of loan officers said they increased their marketing for purchase financing in response to lower refinances. Thirty-eight of the respondents noted that they expect home purchase activity to pick up over the next 12 months, though 30 percent see a decline ahead.

“In addition, very few banks reported having become more likely to approve applications for new mortgages eligible for purchase by the government-sponsored enterprises from borrowers with combinations of FICO scores between 620 and 720 and down payments between 10 and 20 percent,” the report said.

Application volume on purchase transactions was lower at 42 percent of banks, although a quarter reported an uptick.

Thirty percent of loan officers said that they had reduced staffing for purchase production.

A modest number of survey participants, 29 percent, noted that the share of adjustable-rate mortgages picked up.

On the commercial real estate side, 14 percent of banks said they had eased standards on construction-and-development loans. On non-farm residential structures, 10 percent of banks eased credit standards, while multifamily standards were loosened by 21 percent.

C&D loan demand was stronger at more than a third of respondents. Demand on non-farm non-residential properties was up at 30 percent of respondents, and more than a third said multifamily demand increased.

Mortgage Expert

Mortgage Daily Staff



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