Are Credit Standards for Mortgage Loans Finally Relaxing? by Kendall Baer

The October 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed where credit standards stand according to 90 banks across the U.S. and how this impacts the demand for mortgages among households over the past three months. Broken down, the summary discusses the responses from 69 domestic banks and 21 U.S. branches and agencies of foreign banks.

It was found that during the third quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans. It was also reported that a modest number reported easing standards on mortgage loans categorized as QM non-jumbo, non-GSE-eligible residential and QM jumbo residential mortgages. However, it was reported that banks left their lending standards basically unchanged for all other categories of residential real estate home-purchase loans.

Additionally, over the third quarter the banks reported stronger demand for most categories of residential home-purchase loans except for government and subprime residential mortgages. In particular, a significant number of banks reported stronger demand for GSE-eligible residential mortgages. It was also reported that a moderate number of banks reported stronger demand for QM non-jumbo, non-GSE-eligible, QM jumbo, non-QM jumbo, and non-QM non-jumbo residential mortgages.

Despite the modest loosening of credit standards, banks’ credit standards were reportedly little changed for approving applications for revolving home equity lines of credit (HELOCs). In contrast, a significant percentage of banks reported that demand for revolving HELOCs had strengthened.

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