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Mortgage Lending Declines Due to Harsh Winter

MAR 5, 2014 4:57pm ET
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Consumers were less eager to seek new mortgage loans for home purchases in the first quarter, according to a Federal Reserve report released Wednesday.

Demand for loans to buy homes declined in New York, Richmond, St. Louis and Kansas City with much of the blame pegged on the weather. Other parts of the country like Philadelphia and Dallas also saw a softening in lending in this market.

"Residential mortgage lending had nearly come to a halt in part because of this winter's extreme weather," the Richmond Fed reported in the central bank's quarterly economic survey known as the Beige Book, citing bankers in the district.

But there were still signs of some hope in Richmond and elsewhere.

"A Virginia lender believed that the demand of new homes is there, but that people are 'just trying to survive the weather right now,'" according to the Fed's survey.

In Philadelphia, for example, bankers also said real estate lending had "softened" due to the wintry weather, but still found demand overall to be positive.

"Despite this current softness, contacts described an improving lending environment with a stronger labor market, greater consumer confidence, and healthier balance sheets," according to the Fed's survey. "Overall, most bankers remained optimistic for continued slow, steady growth and for some pickup from pent-up demand for housing, autos, and other loans when the spring thaw finally arrives."

But even while two out of the 12 Federal Reserve districtsóCleveland and Atlantaóreported increased demand in new purchase mortgages, appetite for home refinancing declined in four other districts.

In Atlanta, "a number of lenders reported increases in purchase mortgages, but not enough to offset the declines in refinances," according to the Fed's survey.

Consumer demand was also equally mixed with Philadelphia, Cleveland, and Chicago showing a slight uptick in demand, while Richmond and St. Louis reported a decline.

Delinquency rates also declined in New York and St. Louis, while Cleveland said rates were "mostly stable or trended lower."

Bankers in St. Louis found demand was weaker overall, but credit standards, creditworthiness of applications and delinquencies for certain consumer loans had decreased.

Elsewhere, lenders in Cleveland and Atlanta voiced concerns about recently enacted regulations. Contacts in Cleveland didn't specify any particular rules, but expressed their overall worry.

"Several bankers raised concerns about recently enacted regulations and their potential negative impact on lending," according to the Beige Book.

Bankers in Atlanta, however, pointed to the qualified mortgage rule, which came into effect in January.

"Some community bankers reported that they have exited the residential mortgage business altogether because of increased regulatory burdens, while others indicated that they do not believe it will have a negative effect on overall mortgage lending," according to the Fed's survey.

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