By: Mark Lieberman, Five Star Institute Economist
The percentage of banks reporting stronger demand for mortgage loans dropped in the first quarter from the fourth quarter last year, and a slightly greater percentage are reporting easing lending standards, the Federal Reserve reported Monday.
The survey results are reported as a diffusion index; that is, the percentage of respondents saying they are easing lending standards somewhat or considerably is subtracted from those who report they are tightening standards for a range of different lending products. In the case of “traditional” mortgage loans, 1.5 percent of respondents reported “somewhat” tighter standings, while 4.6 percent reported standards easing somewhat, and 1.5 percent reported standards easing considerably for a net 6.1 percent easing. Meanwhile, 92.3 percent said standards were unchanged.
In the fourth quarter of 2012, a net 1.6 percent reported an easing in standards.
While the survey results suggest a direction of lending standards, they could be misleading: A bank which has tightened lending standards as much as possible may not necessarily ease them, but cannot tighten any further. (It would be the equivalent of tightening a faucet as far as possible—not tightening further does not mean loosening it.)
In the survey, a net 2.9 percent of respondents reported tightening standards for “non-traditional” mortgages, and 20 percent reported tighter standards for subprime loans, though 61 of the 71 banks surveyed said they do not make subprime loans.
Non-traditional mortgages, the Federal Reserve said, include but are not limited to: adjustable-rate mortgages with multiple payment options, interest-only mortgages, and “Alt-A’” products such as mortgages with limited income verification and mortgages secured by non-owner-occupied properties.
A net 19 percent of banks surveyed said demand for prime mortgages was stronger in the first quarter than in the fourth. In the previous survey, a net 21 percent of banks said demand for prime mortgages was strengthening.
As many respondents said demand for non-traditional mortgage loans in the first quarter had strengthened as those who said demand weakened; in the previous quarterly survey, a net 3 percent said demand for non-traditional loans was stronger.
Net demand for subprime loans in the first quarter was flat to the prior report.
According to the survey, a net 2 percent of banks reported looser standards for credit card loans in the first quarter compared with a net 11 percent in the fourth quarter. A net 4 percent of banks surveyed said demand for credit cards had weakened somewhat in the first quarter compared with the fourth, when a net 8.5 percent of banks reported stronger demand for credit cards.
Demand for commercial real estate (CRE) loans continued to strengthen in the first quarter with a net 40.3 percent of banks reporting stronger demand compared with a net 44.1 percent in the fourth quarter (after a net 23.4 percent in the third).
A net 13.4 percent of banks reported easing standards on CRE loans in the first quarter compared with a net 8.8 percent in the fourth.
Hear Mark Lieberman on P.O.T.U.S. (SiriusXM 124) on Friday at 6:40 a.m. and again at 9:40 a.m. EST.
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