Fed Survey Reports Anemic Mortgage Demand

The Federal Reserve recently released results for the January 2015 Senior Loan Officer Survey on Bank Lending Practices. This survey addresses changes in the supply of, and demand for, bank loans to businesses and households during the past three months.

Recent data from the January survey painted a fairly positive picture of the nation’s loan markets. On balance, banks reported very little change in their standards for business and commercial real estate (CRE) loans while indicating demand for such loans increased only modestly over the last three months.

§  Regarding C&I loans, banks continued to report having eased spreads, interest rate floors and the cost of credit lines. However, the number of banks that had eased price terms was noticeably lower than in prior surveys.

§  The reasons given for easing standards or terms on C&I loans include more aggressive competition from other lenders, a more favorable economic outlook, increased tolerance for risk or improvements in specific industries.

§  In contrast, some survey respondents noted their concerns about the oil and gas sector resulting from the sharp decline in the price of oil as a reason they had tightened their lending practices.

§  Regarding CRE loans and changes in demand, a modest number of banks indicated they experienced stronger demand for construction and land development loans, and loans secured by nonfarm nonresidential properties. A somewhat larger fraction of banks reported increased demand for loans secured by multifamily residential properties.

Asked about loans to households, several large banks reported having eased lending standards for a number of categories for residential mortgages including those eligible for purchase by government-sponsored enterprises. Most banks reported no change in standards and terms on other kinds of consumer loans (autos, credit cards). On the demand side, a modest number of banks reported weaker demand across most categories of home-purchase loans. In contrast, modest fraction of large banks experienced stronger demand for auto and credit card loans.

Survey respondents were also asked about their expectations for loan delinquency and charge-off rates in 2015. Banks generally anticipate improvements in the performance of most kinds of loans this year but about one-third of the banks that make subprime auto loans expect delinquencies and charge-off rates to increase this year.

Changes in borrowing by businesses and consumers to finance investment and consumption are an indication of confidence levels and the relative strength of the economy. Banks in general have been easing lending standards for several years and demand has mostly trended upward since the end of the recession. Although the overall pace of improvement in the credit markets slowed during recent quarters, the trend on both the business and consumer sides remained positive. (Kimberly Ritter-Martinez)

Source:  http://www.federalreserve.gov/boarddocs/SnLoanSurvey/201208/default.htm