Nearly 45% of banks surveyed by the Federal Reserve increased their holdings of single-family loans in the second-half of 2010 – and half are now forecasting they will increase their holdings even more as the year progresses.
The Fed's survey of senior loan officers at 52 institutions found that 25 banks increased their holding of residential mortgages last year with seven large banks and seven small ones saying the "investment opportunity" was the main reason for the increase. (The mortgages cited include both GSE and FHA loans.)
"The majority of banks that recorded such an increase noted the relative attractiveness of the risk-adjusted returns on these loans compared with other assets and reported having become more willing to expand their overall balance sheets via this category of loan," according to a Fed summary of its January survey.
Meanwhile, eight banks said their single-family holdings increased because the loans did not conform to FHA or GSE requirements. Two large banks and one small one indicated these non-conforming loans are a "very important" reason for the increase, while two large banks and three small banks said it is "somewhat important."
The Fed also asked if charge-offs, paydowns, or loan buybacks were responsible for the build up in mortgage assets, but the companies generally said they are "not important" factors. "Only two banks attributed their loan accumulation in part to repurchases from the GSEs or other securitized pools," the Fed survey says.
The January survey picked up little change in underwriting standards on prime 1-4 family mortgages during the fourth quarter. Demand for prime loans "weakened somewhat," the Fed said.
The Fed also noted that 40% of respondents expect improvement with respect to delinquencies and charge-offs on prime loans. But only 20% of banks expect such improvement on "nontraditional" mortgages such as alt-A, option ARMs and interest-only products. The Fed does not include subprime loans in the nontraditional category.
None of the survey respondents were identified by name.
