Credit Not Driving Demand; Mortgage Market Needs a Boost -Wells Fargo

Senior loan officers who responded to the FederalrnReserve’s quarterly survey of bank lending practices in October reported thatrnchanges to bank lending standards for residential mortgage loans or home equityrnlines of credit (HELOCS) over the previous three months were on net minor.  Changes in demand for those loans was alsornlargely around the edges.</p

Seventy-two banks responded to questions on primernresidential mortgages, equally divided between “large banks,” those with totalrndomestic assets of $20 billion or more, and “other banks.”  The number of respondents droppedrnsignificantly for questions regarding non-traditional mortgages (35 banks, 20rnof them “large”) and sub-prime mortgages. rnOnly six banks, again equally divided by size, answered questions in thernlatter category while 62 banks said they made no such loans. </p

There was, on net a bit of easing in standards forrnoriginating prime mortgages.  Nine largernbanks and one other bank reported moderate easing while moderate tightening occurredrnat 2 other banks.  Sixty banks reportedrnthat their lending standards were essentially unchanged over the period andrnnone reported “considerable” easing or tightening.</p

Of the 35 banks that reported on non-traditionalrnmortgage lending, a category of residential mortgages including adjustable-raternloans with multiple payment options, interest-only mortgages, and Alt-A products,rn80 percent said their standards remained unchanged while 11 percent reportedrnsome easing.  Four of the six banks thatrnmade subprime loans also reported no change with one each reporting slightrneasing or slight tightening.  </p

Of the 72 banks who responded to questions aboutrnHELOC lending, 94 percent said standards were essentially unchanged over thernthree month period.  Five banks reportedrnthey had slightly eased their standards and one had slightly tightened them.</p

Lenders were asked whether, apart from normalrnseasonal variations, the demand for prime mortgages had changed.  Fourteen banks or 19 percent said that demandrnhad been moderately stronger while to about the same number categorized therndemand as moderately weaker.  Sixtyrnpercent called demand about the same. </p

Of those banks who originate non-traditionalrnloans two-thirds called demand unchanged, and 26 percent called demandrnmoderately weaker. Only one lender reported any change in demand for subprimernloans, a moderate lessening.</p

There were 13 banks or 18 percent who thoughtrndemand for HELOC loans had increased moderately while 9 banks or 13 percentrnnoted weaker demand.  49 banks calledrndemand about the same.</p

In their analysis of the Senior Loan Officernsurvey Wells Fargo Securities Economics Group said that the mortgage market<bneeds a boost, calling demand underwhelming. rnDespite the residential market showing further signs of easing itsrnstandards, fewer banks reported stronger demand for prime mortgages withrnnontraditional and subprime following suit. rn</p

This, the Economics Group said, reflects “arnpersistent concern about the lack of household formation and absence of thernfirst time homebuyer as renting continues to dominate.

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