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Banks See Stronger Demand for Closed-End Mortgages

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Financial institutions reported that demand for closed-end home loans has grown, though demand for lines of credit secured by residential properties was lower. Commercial mortgage standards, meanwhile, were at the tightest levels in six years.

More banks have seen stronger demand for loans to purchase homes over the past three months than banks that have experienced weaker demand. It was the first time since early last year that the number of banks reporting increased demand outnumbered those with weaker demand.

That was according to the October 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board.

The latest rendition of the survey was based on responses from 51 domestic banks and 22 U.S. branches and agencies of foreign banks.

The report suggested that the improved demand was the result of elevated refinance activity despite that banks were asked to only comment on purchase-money financing.

“Although the question asks them to do so, some respondents may find it difficult to separate mortgage demand associated with the purchase of new loans from that associated with the refinancing of existing mortgages,” the survey said.

But the same couldn’t be said about demand for home-equity lines of credit, with more banks reporting lower demand. The decline in demand was more prominent among smaller institutions.

There wasn’t much change in standards on prime or nontraditional closed-end residential loans. This has been the case for several past surveys. It was the same situation for HELOCs.

Lending standards on commercial real estate loans weren’t much different than in the prior report. CRE standards were described as being at or near their tightest levels since 2005.

“In contrast, a large fraction of foreign respondents reported having tightened standards on CRE loans, in a substantial shift from the net easing reported by those institutions in the prior two surveys,” the report said. “Modest fractions of domestic and foreign banks reported a strengthening of demand for CRE loans, on net, although these reports were a bit less widespread than in the two previous surveys.”

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