Residential Recovery Contrasts Commercial Contraction

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11 · 10 · 09

Demand for residential loans increased for the third quarter in a row, while demand for commercial mortgages tumbled, according to a quarterly bank survey. Faced with few refinancing options, many banks are giving commercial mortgage borrowers extensions.

Financial institutions reported stronger demand for prime residential loans in the October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve Board. It was the third consecutive quarter that residential demand strengthened.

While home-equity line-of-credit standards were mostly static compared to the prior survey, HELOC demand was weaker at 30 percent of the institutions.

Just 5 percent of the banks indicated demand had weakened for nontraditional mortgages.

One-quarter of the banks had tightened their residential lending standards during the past three months, slightly more than in the July survey but well “below the peak of about 75 percent that was reported in July 2008.”

“The net percentages of banks that tightened standards and terms for most loan categories continued to decline from the peaks reached late last year,” the survey said. “The exceptions were prime residential mortgages and revolving home-equity lines-of-credit, for which there were only small changes in the net fractions of banks that had tightened standards.”

More than a third of the surveyed loan officers said they had tightened standards on commercial real estate loans — slowing the pace of tightening from 45 percent of July respondents.

Commercial mortgage demand was down at 45 percent of the banks, “high by historical standards.” Still, the share with declining demand was better than nearly two-thirds in the prior survey.

Three-quarters of those surveyed indicated that more than one-fourth of the commercial real estate loans they owned that was scheduled to mature by September had been extended. Around one-fifth or less of the domestic banks surveyed indicated they had refinanced maturing commercial mortgages.

Mortgage Expert

Mortgage Daily Staff