SLOOS: Mortgages See Weaker Demand and Tighter Standards

The Federal Reserve Board recently released its April 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey addresses changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.

According to the household component of the April survey results, banks eased their lending standards for auto loans and credit cards. At the same time, a net share of bank officers reported having observed rising demand for auto loans and credit cards. In contrast, a net share of bank officers reported that their bank had tightened lending standards on prime residential mortgages and a net share reported having observed a decline in demand for prime residential mortgages.

The figure below illustrates these results. According to the figure, a net percentage of 7.8% of senior bank officers reported that lending standards on auto loans had eased and a net of 10.9% of officers reported having observed a rise in demand for auto loans. Similarly, a net percentage of 9.2% of senior loan officers reported that their bank had eased lending standards on credit cards and a net percentage of 9.8% of officers reported having observed greater demand for credit cards over the first quarter of 2014. In contrast, a net percentage of 1.4% of senior bank officers reported that their bank had tightened their standards on prime residential mortgages and a net percentage of 25.8% of officers reported having observed a decline in demand for these mortgage products. An equal share of bank respondents reported tightening lending standards and easier lending standards as well as stronger demand and weaker demand for other consumer loans.

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Figure 2 illustrates that the net tightening in lending standards masks variability in its underlying composition. However, the net decline in observed demand for prime residential mortgages was widespread. According to the figure, a net fraction of 8.6% of bank officers at large banks reported that their large bank eased lending standards on residential mortgages. However, the easier lending standards reported by large banks was more than offset by the 11.4% net fraction of bank officers at “other” banks that reported tighter lending standards. According to the survey, large banks refer to large, national banks while other banks encompass large but regional banks.

Bank officers at both large banks and other banks reported that demand for prime residential mortgages had declined over the first quarter of 2014. A net fraction of 34.4% of senior bank officers at large banks reported having observed a drop in demand at their large bank and a net fraction of 17.1% of bank officers at other banks observed a drop in demand at their bank.

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