Banks Report Weak Mortgage Demand in Early 2014

Over the past three months, at least 30% of U.S. banks cited weaker demand for various types of mortgages during the first quarter of 2014, according to a recent Federal Reserve lender survey.

The April 2014 Senior Loan Officer Survey on Bank Lending Practices gauged responses from 74 domestic banks and 23 U.S. branches and agencies of foreign banks on the demand for bank loans to households and business this year thus far.

Regarding residential mortgages, banks reported mixed changes in standards, but reports of weaker demand outnumbered reports of stronger demand for each type of residential real estate loan. 

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In the past three months, 38.6% of banks reported “moderately weaker” demand for prime residential mortgages. Demand was also “moderately weaker” for nontraditional residential mortgages, according to 32.4% of banks.

Nontraditional loans included 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.

When it came to subprime loans, only 14.3% of banks reported “substantially weaker” demand over the last three months, whereas 85.7% said demand stayed “about the same.”

Looking ahead, a large fraction of banks expect higher growth to stem from outstanding consumer credit card loans to prime or super-prime customer, with 52.2% anticipating “somewhat higher growth” in 2014 compared to 2013. 

A little less than half of this majority feel the same way about nonprime borrowers, as 23.7% of lenders expect “somewhat higher growth” from these customers.

View the Federal Reserve survey

Written by Jason Oliva

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