Residential Real Estate Credit Standards Ease Slightly in Third Quarter


The latest results of the Federal Reserve’s Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), lending standards and demand for residential real estate (RRE) loans both eased slightly in the third quarter of 2021. Additionally, banks reported easier lending standards for all categories of commercial real estate financing (CRE loans), and, within CRE, stronger demand for multifamily loans and unchanged demand for construction and land development loans.

RRE lending standards eased in all categories relative to the second quarter except for subprime lending, a widely attributed culprit of the financial crisis of ’08. In fact, 59 of the 66 banks surveyed reported in the latest SLOOS that they do not originate subprime residential loans.

The figure above, together with the survey’s results for households’ demand of residential real estate loans, are signs of the cooling of the housing market in the United States. Low-inventory and high demand across the top-tiers of homebuyers (i.e., those who can afford properties secured by higher loan balances) also partly explain the decline in purchasing activity. For example, as explained in a recent coverage of the Mortgage Bankers Weekly Application Survey, purchasing activity continued its downward trajectory relative to the past seven months.

Within residential real estate, the only subcategories whose demand was reported to be unchanged from the prior quarter were qualified mortgage jumbo loans (QM) and home equity lines of credit (HELOCs). “Jumbo” loans are defined as loans exceeding the 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.

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