Easing Credit Conditions in the Second Quarter

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The latest results of the Federal Reserve’s Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), showed that the market for commercial real estate financing (CRE loans) and residential real estate (RRE) financing eased compared to the first quarter.

While the demand-side market participants for CRE loans are businesses, those of RRE loans are households.  The Mortgage Bankers Association’s (MBA) Weekly Application Survey during the second quarter showed that the average loan balance of purchase mortgages reached their highest level in May since February.  The second quarter SLOOS shows a greater fraction of respondents (commercial banks) reporting demand for “jumbo” loans (i.e., loans exceeding loan-servicing limits set by Fannie Mae and Freddie Mac — currently $548,250 for a single-family home in all states except for Hawaii, Alaska and certain, designated “high-cost markets”) as “moderately stronger” or “substantially stronger” than any of the other RRE categories; for qualifying mortgages, the combined fraction of bank respondents reporting moderately to substantially stronger demand for such loans was 35%.

In the second quarter, commercial banks, divided in the survey between “large” and “other” banks, eased lending standards for most mortgage products and home equity lines of credit. The easing was most widely reported for jumbo loans, qualifying and non-qualifying, thus attesting to the greater fraction of homes sold in the second quarter as being part of higher-price tiers. The survey shows that, across all loan categories, a higher proportion of large banks reported lending standards having “eased somewhat” than those of other banks.

Large banks reported to have tightened lending standards only in one loan category, GSE-eligible mortgages, where 3.6% of large banks reported that they had tightened standards “somewhat” and another 3.6% reported that they had tightened “considerably”.



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