Senior Loan Officer Survey Examines Views on HARP 2.0

by devteam August 8th, 2012 | Share

Resultsrnof the Federal Reserve’s July SeniorrnLoan Officer Opinion Survey on Bank Lending Practices were released onrnTuesday.  The survey, in which 64 domesticrnbanks or subsidiaries and 23 U.S. branches of foreign banks participated, addressedrnchanges in the supply of, and demand for bank loans to businesses andrnhouseholds over the past three months. rnRespondents are categorized as small banks (annual sales under $50rnmillion), or large ones with sales over that amount.</p

Loanrnofficers were asked to gauge whether lending standards had strengthened, eased,rnor stayed the same for each major category of lending; commercial andrnindustrial, commercial real estate, and household lending, and to also estimaternchanges in demand for those loans.  Ofrnthe three special questions that the Fed includes in each survey, one in this roundrnconcerned the lending officer’s experiences and attitudes toward the HomernAffordable Refinancing Program (HARP 2.0). </p

Householdrnlending includes residential first mortgage lending, home equity lines ofrncredit (HELOCs), credit cards and auto loans. rnReported changes in standards for household lending were mixed acrossrnloan types.  </p

Inrnthe residential mortgage category 94 percent of respondents said theirrnstandards for prime loans were unchanged but, while less than half of thernrespondents reported lending on non-traditional mortgages, 15 percent of thosernsaid their standards for those loans had tightened somewhat.  All six of the banks who said they hadrnoriginated subprime loans said their standards had not changed.  </p

Whenrnasked about the demand for purchase mortgages, 9.8 percent reported arnsubstantial increase in the demand for prime mortgages, 48 percent a moderaternincrease and 38 percent little change.  Forrnnon-traditional mortgages, of the 27 respondents reporting 56 percent said therernwas little change in demand and 41 percent had seen a moderate increase.</p

Standardsrnfor HELOCs were unchanged at 98.8 percent of the banks reporting and demand forrnthe loans was relatively unchanged at 62 percent.  There was a moderate increase in demand notedrnby 22.2 percent of respondents and a weaker demand by 15.9 percent.</p

Inrnthe special questions, lenders were first asked about their level ofrnparticipation in HARP 2.0.  Thirty banksrnsaid they had done HARP loans but most reported a low volume of refinancingrnthrough the program, with two-thirds saying it constituted less than 30 percentrnof their refinancing.  Only 6.7 percentrnreported more than half of their transactions were through the program.</p

Thernloan officers were asked, based on their experience to date, what share of HARPrn2.0 applications they anticipated would be approved and successfullyrncompleted.  The largest group ofrnrespondents (43 percent) said between 60 and 80 percent while 23 percent saidrnover 80 percent and 17 percent estimated 40 to 60 percent. </p

ThernFed then asked a series of questions about factors affecting the bank’srnwillingness or ability to offer more refinancing through HARP 2.0.  Forty-nine banks responded to the following questions,rnranking them by relative importance.</p

1.     rn My bank does not offer HARP refinances to borrowersrnwith very high LTV ratios (LTV)</p

2.     rnMy bank requires higher FICO orrnother measures of creditworthiness than required by the programrn(Creditworthiness)</p

3.     rnMy bank does not offer HARP 2.0 tornborrowers with limited or nonstandard documentation of income or assetsrn(Documentation).</p

4.     rnMy bank offers HARP 2.0 refinances onlyrnon mortgages it already owns or services (Ownership).</p

5.     rnPeriods with a high volume of loan refinancernapplications exceed application processing capacity (Capacity).</p<table cellpadding="6" cellspacing="0" border="1"<tbody<tr<td valign="top" width="127"

Reason</p</td<td valign="top" width="114"

Notrn Important (%)</p</td<td valign="top" width="114"


Importantrn (%)</p</td<td valign="top" width="108"

Veryrn Important (%)</p</td<td valign="top" width="126"

Thern most Important (%)</p</td</tr<tr<td valign="top" width="127"

LTV</p</td<td valign="top" width="114"

51.0</p</td<td valign="top" width="114"

18.4</p</td<td valign="top" width="108"

22.4</p</td<td valign="top" width="126"

8.2</p</td</tr<tr<td valign="top" width="127"

Creditworthiness</p</td<td valign="top" width="114"

58.8</p</td<td valign="top" width="114"

17.6</p</td<td valign="top" width="108"

15.7</p</td<td valign="top" width="126"

7.8</p</td</tr<tr<td valign="top" width="127"

Documentation</p</td<td valign="top" width="114"

55.1</p</td<td valign="top" width="114"

8.2</p</td<td valign="top" width="108"

26.5</p</td<td valign="top" width="126"

10.2</p</td</tr<tr<td valign="top" width="127"

Ownership</p</td<td valign="top" width="114"

28.6</p</td<td valign="top" width="114"

22.4</p</td<td valign="top" width="108"

24.5</p</td<td valign="top" width="126"

12.0</p</td</tr<tr<td valign="top" width="127"

Capacity</p</td<td valign="top" width="114"

42.9</p</td<td valign="top" width="114"

20.4</p</td<td valign="top" width="108"

24.5</p</td<td valign="top" width="126"


Unfortunatelyrnthe Senior Lending Officer Report did not give further details on the mostrnimportant factors that were specified by 77 percent of the respondents.</p

Thernsurvey also reported that moderate fractions of domestic banks had easedrnstandards on auto loans while somewhat smaller net fractions reported easingrnstandards on credit cards.  Standards onrnother consumer loans were unchanged.  </p

Overall, modestrnfractions of domestic banks continued to report having eased their lendingrnstandards across most loan types over the past three months and relatively large fractions reported stronger demand for manyrntypes of loans in the same period.  In contrast, lending standards at U.S.rnbranches and agencies of foreign banks continued to tighten for commercial andrnindustrial (C&I) loans and were unchanged for commercial real estate (CRE)rnloans; demand for both types of loans reportedly weakened, on net, at thoserninstitutions.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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