New Mortgages Cushion Refinancing Blow at Banks: Fed Survey
With mortgage rates climbing in recent weeks homeowners have switched from feverishly pursuing refinancing to buying new homes, a Federal Reserve Board report said Wednesday.
Among the 12 Federal Reserve districts, bankers from Philadelphia, Cleveland, Atlanta and Chicago, said they saw a shift toward new home purchases and away from refinancing in part because of rising mortgage rates, according to the Fed's quarterly economic survey known as the Beige Book.
Improvements in loan demand in past surveys had been largely driven by mortgage refinancing as homeowners hoped to lock in historically low interest rates caused by the Fed's easy money policies. But rates have been driven up given current discussions by the U.S. central bank on when it should begin tapering its bond purchases, a likely signal that the Fed would start lifting rates soon after.
In Philadelphia, "contacts reported a decline in refinance applications in the pipeline after rates rose." Bankers, meanwhile, also reported "increasing sales of new and existing homes are raising demand for home mortgages," according to the Fed's survey.
Some bankers from the Richmond district shared a similar experience. "They also indicated that while mortgage refinancing had slowed, new purchase loan demand had increased," according to the Fed's survey.
One Virginia banker proclaimed "refinancing had died," while another lender in South Carolina said refinancing still made up a "majority" of his residential mortgage business.
Other customers in the district also said they "no longer qualified for loan refinancing due to higher rates." Another lender in Maryland said "people were waiting to see what rates would do," as well.
Similarly in the Chicago district, the recent increase in mortgage rates caused refinancing to slow, but lenders noted an increase in new home loans.
Bankers in the Dallas district said their outlook for loan demand was "optimistic" with a "robust pipeline for mortgages."
Overall, bankers across the country reported banking conditions as "generally positive" with "overall loan demand increased modestly across most reporting districts," according to the Fed's survey.
Bankers in the New York district reported "mixed" results, but found an increase in loan demand generally. For example, they saw a spike in demand for commercial mortgages, but a decrease for residential mortgage.
However, loan volumes in the Philadelphia district grew at a "modest pace" across most categories, but "a little faster" than the last survey in June.
Most banks reported "improvement in all aspects of business," including "more upgrades of credits" within their own portfolios, according to the Fed's survey. "Contacts expressed continued optimism for future growth and sensed greater consumer confidence."
Demand for credit increased "slightly" in the Cleveland District, especially for commercial real estate and multifamily-construction loans.
In the Kansas City district, banking conditions also improved "slightly" with "marginally higher loan demand and generally better loan quality."
That was not the case entirely in the Atlanta district were loan demand had "remained stable" for residential real estate, and auto loans stayed "constrained" by competitive offers from automakers.
Others in Cleveland, Chicago, and Dallas districts made note of the competitive pressures to reduce loan pricing. "Almost all banks reported aggressive credit-pricing pressure" in Cleveland, according to the Fed's survey.