Some banks have seen lower approval rates for conforming borrowers as a result of Qualified Mortgage and Ability-to-Repay requirements. Jumbo and nontraditional borrowers fared far worse.
There has been no change in residential lending standards over the past three months at 70 percent of 71 surveyed banks that make prime mortgages. But nearly a quarter noted that standards had eased somewhat.
Demand for prime mortgages, however, was moderately stronger at around half of the financial institutions. Nearly 41 percent reported no change.
The Federal Reserve Board reported the results Monday from its July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices. A total of 75 domestic banks and 23 U.S. branches and agencies of foreign banks participated in the survey.
U.S. banks were required to adhere to the Consumer Financial Protection Bureau’s requirements for the ATR and QM rules as of Jan. 10.
At banks that make prime conforming mortgages, 63 percent indicated that the approval rate on home purchase loans to borrowers with credit scores of 680 or less hasn’t changed since the rules were implemented.
But a third of the banks said that their approval rate on these borrowers was somewhat lower than it would have been otherwise. But large banks diverged from their smaller counterparts; less than a fifth of large banks said their approval rate post-QM had declined, while the share jumped to nearly half at other banks.
The biggest impediments to approvals for this prime conforming group were the requirement to evaluate the borrower’s current and expected income and the 43 percent debt-to-income ratio limitation.
For prime conforming borrowers with credit scores above 680, just 44 percent of the smaller banks noted that approval rates had eased. The other post-QM metrics for higher credit score borrowers weren’t much different than for sub-681 borrowers.
For these higher score borrowers, evaluation of income was the biggest impediment to approvals.
As loan amounts exceed the conforming limit, 48 percent of all banks said that the approval rate had somewhat diminished. This ratio was a few points higher for smaller banks than large banks.
The 43 percent DTI requirements hurt jumbo borrowers the most, though income verification was also a big reason cited for lower approval rates.
Underwriting standards on nontraditional loans were the same at 78 percent of the 36 respondents in this category as they were three months prior, and 14 percent indicated some easing.
Nearly half of nontraditional lenders indicated that their approval rates had fallen as a result of QM and ATR requirements. They cited requirements to evaluate credit history, assets, income and debt payments as the cause of greater denials. The 43 percent DTI limitation had a similar impact on the approval rates.
Although 80 percent of nontraditional home lenders reported no change in demand over the past three months, 17 percent said that demand had risen modestly.
Of the four banks that make subprime mortgages, all said that underwriting standards and demand had remained basically unchanged over the past 90 days.
More than 87 percent of the 71 banks that issue home-equity lines of credit indicated that standards hadn’t changed. But almost a third said demand had increased. Nearly 60 percent said demand was unchanged.
At banks that make commercial real estate loans, 88 percent of the 73 banks that make construction-and-development loans noted there have been no changes in credit standards for such loans. Nearly a third, however, noted that C&D demand had picked up moderately.
Nonfarm, nonresidential commercial mortgage standards were unchanged at 87 percent of banks, while 23 percent noted that demand was modestly higher.
Multifamily lending guidelines remained unchanged at 80 percent of banks, 11 percent said they were somewhat tighter and 10 percent reported a modest easing. Nearly three-quarters of multifamily lenders noted unchanged demand, but almost a quarter said demand was modestly stronger.
