The Federal Reserve's July Senior Loan Officer
Opinion Survey on Bank Lending Practices showed a continued easing of lending
standards and terms for many types of loan categories amid a broad-based pickup
in loan demand. Although many banks
reported having eased standards for prime residential real estate loans,
respondents generally indicated little change in standards and terms for other
types of loans to households.
Seventy-one banks, almost evenly divided between
large banks and "other" banks, responded to most questions about prime residential
lending While 20 percent said their
lending in that category had remained essentially unchanged over the past three
months, 24 percent (mostly large banks) said they had eased their requirements
somewhat. One large bank and three other
banks (5.6 percent of the total) noted some degree of tightening for these
Only 36 banks reported underwriting nontraditional
residential loans and 78 percent of those reported little change in their
standards while 14 percent reported some easing and 8.3 percent some tightening. Only four banks reported doing any subprime
Demand for purchase prime mortgages was reported to
be about the same as three months earlier by 41 percent of respondents and
moderately stronger by 50 percent. Among
those banks responding about non-traditional mortgages 80 percent reported
demand largely unchanged and 17.1 percent noted a moderate growth.
Among the 71 banks answering questions regarding
home equity lines of credit 87 percent said their underwriting criteria was
basically unchanged from the April survey.
Demand for these loans was reported as moderately stronger by 31 percent
and unchanged by 60 percent.
The July survey included a set of special questions on the effects on the
approval rates for home-purchase loans of the Ability-to-Repay and Qualified
Mortgage Standards under the Truth in Lending Act (the ATR/QM rule), which came
into effect early this year. The majority of banks (62.9
percent) reported that the new rule has had no effect on the approval rate of
prime conforming mortgages, in part because those loans qualify for a safe
harbor under the exemption for loans that meet the underwriting criteria of the
government-sponsored housing enterprises (GSEs). Most of the remaining
respondents said that the approval rate is somewhat lower than it would
"Other" banks, however were much more likely to report an effect from the
new rules than larger banks. While 78
percent of large banks reported little change in loan approvals, only 47
percent of others said this and another 47 percent reported a lower rate of
approval. In addition, among the banks
reporting that the rules had no effect on their approval rates, about half
indicated that lending policies would have been tighter without the safe harbor
for mortgages that pass the GSEs' automated underwriting models
In contrast, about half of the respondents indicated that the ATR/QM rule
has reduced approval rates on applications for prime jumbo home-purchase loans
and nontraditional mortgages. Again the
responses reporting negative consequences from the rules were skewed toward "other"
Among the institutions indicating lower approval rates for such loans, most
reported that each of the following provisions were important reasons for the
lower approval rates: the ATR provisions that require mortgage originators to
evaluate income and to assess credit history, assets, and debt payments; and
the QM provision that caps the borrower's back-end debt-to-income ratio at 43
percent. Finally, more than half of the 36 respondents that originate
nontraditional mortgages also indicated lower approval rates on nontraditional
home-purchase loans due to the ATR/QM rule.
Another set of special questions in the July survey asked respondents to
describe current levels of lending standards relative to the midpoint of the range
over which their bank's standards had varied between 2005 and the present. With respect to the six types of residential
real estate loans included in the survey (prime conforming mortgages, mortgages
guaranteed by the Federal Housing Administration or the U.S. Department of
Veterans Affairs, prime jumbo mortgages, subprime mortgages, nontraditional
mortgages, and HELOCs) standards were reported to be at least somewhat tighter
than the midpoints of the ranges that those standards have occupied since 2005.
However, these results still indicate a net easing of credit conditions for the
loans from the even tighter levels reported in the July 2013 survey.