Bankers See No Improvement Ahead in Production

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Most bank lending officers surveyed last month didn’t expect any improvement in residential originations during the rest of this year, though changing market conditions could change that consensus. A few banks have eased up on requirements for home-equity lines of credit, but nobody is making commercial mortgages any easier to get.

Three-quarters of bankers don’t expect any improvement in second-half 2011 home-loan production.

The reason for the lackluster outlook: demand.

Those findings were outlined in the Federal Reserve Board’s July 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices. Executives from 55 domestic institutions and 22 U.S. branches and agencies of foreign banks participated.

In addition to weak demand, the loan officers cited unfavorable or uncertain forecasts for the broad economy and home prices. A few of the respondents blamed “increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.”

But conditions have changed since last month.

The 10-year Treasury yield, which had been above 3 percent during the survey month of July, closed last month at 2.82 percent, according to data released by the Department of the Treasury. Mortgage rates tend to move with the 10-year yield.

But the 10-year yield fell to 2.23 percent as of yesterday, and banks are likely to report stronger demand for home loans in October’s upcoming survey.

The Fed noted little change in demand for prime mortgages.

On nontraditional residential loans, demand weakened at a handful of banks.

On all types of residential loans, between 10 and 15 percent of respondents said that residential guidelines were easier now than they have been during the majority of the past six years. But a much bigger share of the group said standards had tightened.

Lending standards on prime mortgages haven’t changed much since April, the survey indicated. The same can be said for nontraditional loans.

But the report indicated that a tenth of the loan officers had relaxed standards on HELOCs.

None of those surveyed said that standards were eased on commercial real estate loans.

More than half of the domestic respondents said that CRE standards remain more tight than they have been a majority of the time since 2005.

CRE loan demand strengthened at more than a third of the banks. But smaller banks haven’t seen much change.

Three-quarters noted that guidelines on construction-and-development loans “were tighter than the middle of the range that these standards have occupied since 2005.” In addition, nearly one third of the banks indicated C&D standards were currently at their tightest level during the period.

Based on all types of lending, “banks continued to ease lending standards and most terms on all major types of loans other than loans secured by real estate over the past three months.”


Mortgage Daily Staff


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