Banks made few credit easing moves to counteract the drop in the refinancing business this summer, according to a new Federal Reserve survey.
The main reaction involved cutting staff and increasing advertising to drum up more purchase mortgage business.
The Federal Reserve survey of senior loan officers found nine out of 34 large banks eased their credit standards on prime mortgages “somewhat.” Credit standards at small banks were “about unchanged,” the Fed says.
More than 90% of the respondent banks reported a moderate to substantial reduction in refinancing applications from June through Oct. 1—the cutoff date for the Fed survey.
“However, very few banks reported having reduced origination and processing fees, or minimum required downpayments and FICO scores for approving home-purchase loan applications,” says the Fed.
Only two banks out of the 63 surveyed said they reduced their downpayment requirements and only three said they reduced their credit score requirements.
“In addition, very few banks reported having become more likely to approve applications for new mortgages eligible for purchase by the government-sponsored enterprises from borrowers with combinations of FICO scores between 620 and 720 and downpayments between 10% and 20%,” the Fed says in summarizing the findings of its periodic survey.
In some instances the survey findings seem contradictory. For instance, 20 banks reported moderately stronger demand for prime loans and 19 reported moderately weaker demand. Mostly smaller banks reported stronger demand and they probably specialize in
The next time the Federal Reserve conducts this survey it should ask how the implementation of the qualified mortgage rule is affecting bank decisions to ease or tighten their lending standards.
