Mortgage demand is holding up for bank loan officers, while approval requirements have changed little. Banks expect to reduce their holdings of private-label mortgage-backed securities over the next year.
Only a small share of domestic banks have changed their standards on residential lending over the past three months — with just a few domestic banks having eased their standards on prime mortgages.
Demand for residential loan products was little changed among domestic banks, though demand has picked up for just prime mortgages.
The findings were discussed in the Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board.
Responses were provided by 68 domestic banks and 21 U.S. branches and agencies of foreign banks.
Survey participants were asked how much more or less likely would they be to approve a GSE-eligible, 30-year, purchase-financing loan for borrowers with varying credit scores and down payments.
A modest share of mostly small banks indicated they wouldn’t approve a loan with a FICO score of 620. A modest fraction of banks were more likely to approve an application with a 720 FICO score and a 20 percent down payment.
Compared to a year ago, about a third of the respondents indicated that they were less likely to approve an FHA-insured application with a 3.5 percent down payment and a FICO score of 580 or 620.
Around three-quarters of respondents cited the risk of repurchase demands from Fannie Mae and Freddie Mac as an important factor that is restraining home purchase financing approval.
A similar share said the housing and economic outlook were somewhat important factors in restraining home lending.
“Four-fifths of respondents indicated that the ‘risk-adjusted profitability of the residential mortgage business relative to other possible uses of funds’ was an important factor restraining RRE lending, and a large fraction of banks also reported an increase in the importance of this factor over the past year,” the report said.
Over the next year, banks expect to reduce their holdings of private-label mortgage-backed securities, while agency MBS holdings are expected to remain the same. A moderate share expect to increase residential loan holdings.
On the topic of commercial real estate loans, a moderate share of domestic respondents indicated that they had eased standards on CRE loans over the previous three months.
CRE loan demand has strengthened, according to a “significant” share of domestic banks.
