The most recent iteration of the Federal Reserve Board’s Senior Loan Officer Opinion Survey (SLOOS) finds stronger supply of and demand for most mortgage products across commercial bank respondents. On the mortgage supply side, net credit standards eased on 5 of the 7 mortgage products tracked by the SLOOS while stronger demand was recorded for 6 of the same 7 mortgage products.
Lending standards are considered to have eased when the percentage of loan officers reporting that standards had eased at their bank exceeds the portion that said standards had tightened. A positive difference indicates net easing and negative number means net tightening. Similarly, a net change in demand is the difference between the proportion of loan officers reporting stronger demand at their bank and those saying that demand weakened.
As illustrated by the figure below credit standards, a measure of mortgage credit supply, on net, eased on GSE-eligible, QM-jumbo, QM non-jumbo, non-QM jumbo, and non-QM non-jumbo mortgages*. Standards were neutral on government mortgages and on subprime mortgages and no mortgage product saw net tightening over the quarter. In addition, senior officers reported stronger demand on net across most mortgage products. As the figure shows, loan officers only saw a net decline in demand on subprime mortgage products.
However, the results reported under the SLOOS may not fully reflect supply and demand dynamics in the entire mortgage market. The release of 2015 data under the Home Mortgage Disclosure Act, HMDA, indicates that the share of mortgage originations by independent mortgage companies “led all types of lenders with 44% market share of originations at the end of 2015, accounting for 12 of the top 25 originators in 2015”. NAHB reported earlier that independent mortgage companies accounted for the largest proportion of home purchase mortgages in 2014. Since independent mortgage companies now account for the leading portion of mortgage originations, tracking supply and demand dynamics at these firms in addition to commercial banks, would provide a more complete picture of the entire mortgage market.
* The SLOOS defines each of the mortgage categories in the following manner;
- The GSE-eligible category of residential mortgages includes loans that meet the underwriting guidelines, including loan limit amounts, of the GSEs – Fannie Mae and Freddie Mac.
- The government category of residential mortgages includes loans that are insured by the Federal Housing Administration, guaranteed by the Department of Veterans Affairs, or originated under government programs, including the U.S. Department of Agriculture home loan programs.
- The QM non-jumbo, non-GSE-eligible category of residential mortgages includes loans that satisfy the standards for a qualified mortgage and have loan balances that are below the loan limit amounts set by the GSEs but otherwise do not meet the GSE underwriting guidelines.
- The QM jumbo category of residential mortgages includes loans that satisfy the standards for a qualified mortgage but have loan balances that are above the loan limit amount set by the GSEs.
- The non-QM jumbo category of residential mortgages includes loans that do not satisfy the standards for a qualified mortgage and have loan balances that are above the loan limit amount set by the GSEs.
- The non-QM non-jumbo category of residential mortgages includes loans that do not satisfy the standards for a qualified mortgage and have loan balances that are below the loan limit amount set by the GSEs. This category excludes loans classified by as subprime in this category.
- The subprime category of residential mortgages includes loans classified as subprime. This category typically includes loans made to borrowers with weakened credit histories that include payment delinquencies, charge-offs, judgements, and/or bankruptcies; reduced repayment capacity as measured by credit scores or debt-to-income ratios; or incomplete credit histories.
Leave a Reply