Smaller Banks Report Tighter Underwriting Standards on Mortgages

November 9, 2010 No Comments »


Smaller banks and mortgage lenders reported tighter lending standards on mortgage loans over the previous three months, according to the October 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.

It marks a reversal from the slight net easing reported in the previous survey conducted in July.

The tightening of underwriting standards on prime mortgage was largely tied to smaller banking institutions, while larger banks reported little change on such mortgages.

But both large and small banks reported a net tightening in underwriting on non-traditional mortgage loans, such as subprime and Alt-A loan offerings.

Fewer than half of the respondents reporting making those types of loans during the quarter, a trend seen since the start of the mortgage crisis a few years back.

Additionally, more banks reported that underwriting standards for home equity lines of credit had tightened, likely because house values continue to be under pressure.

And a modest net fraction of banks reported weaker demand for both prime and nontraditional mortgages used to purchase homes.

Not good news for the flagging housing market, or for loan officers and mortgage brokers, who have relied on refinance applications to stay afloat.

Those too look to be slowing, so 2011 may not be the best of years for the mortgage industry.

Just under $1 trillion in residential loan origination volume is predicted next year.

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