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August 6th, 2013

Banks slightly ease mortgage lending standards



ApprovedU.S. banks reported looser lending standards and higher demand for certain home loans in the second quarter, according to the Senior Loan Officer Opinion Survey on Bank Lending Practices, released this week.

Or maybe not. Read on, and we’ll explain.

The survey measured changes in bank loans to businesses and households with findings based on responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

What the Fed said…in technical terms

The Fed’s findings use terms like “modest net factions of banks,” “moderate net fractions of banks” and “a large net fraction of banks,” all of which might be loosely translated as “more banks than not” since they’re based on comparisons of numbers of banks that said yes versus no.

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A look at the underlying data reveals more, however.

What the Fed really said

In response to a question about how banks’ credit standards for approving applications for prime home-purchase loans had changed during the three-month period, 58 banks, or 86 percent, said credit standards had remained basically unchanged.

Seven banks, or 10 percent, said standards had eased somewhat, and two banks, or 3 percent, said standards had tightened somewhat.

The Fed’s statement that a “modest net fraction” reported easing means seven banks said yes and two said no. The 58 banks that said neither were ignored. By the way, none of the banks said standards had tightened or eased considerably, adding weight to the argument of little change either way.

Loan demand increased

In response to a question about how banks’ demand for new-home purchase loans had changed over the prior three months, 22 banks, or 33 percent, said demand had remained about the same.

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Thirty eight banks, or 57 percent, said demand was moderately stronger.

Five banks, or 7 percent, said demand was moderately weaker.

The Fed’s statement that a “large net fraction” reported greater demand means 38 banks said yes and five said no. The 22 that said neither were excluded.

One bank reported demand was substantially stronger and one said demand was substantially weaker. Those responses, 3 percent of the total, apparently canceled each other out.

Lending standards eased for fifth consecutive month

A separate measure of mortgage credit availability, tracked by the Mortgage Bankers Association, found lending standards eased slightly for the fifth consecutive month in July, though much of the change resulted from cash-out refinancings rather than home-purchase loans.

The bottom line for borrowers is that home-loan lending standards might be easing slightly, but the emphasis should be on “slightly.” And statistics should be read with caution.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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