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Fed Survey Points to Tougher Mortgage Guidelines Going Forward


More domestic U.S. banks reported tightening standards on all types of home loans over the past three months, according to the July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve today.

Roughly three out of four domestic respondents indicated that they had tightened lending guidelines for prime loans over the last quarter, up from just 60 percent in the previous survey.

With regard to nontraditional offerings, a whopping 85 percent of respondents reported tighter underwriting guidelines, up from 75 percent in the April survey, while 6 out of 7 respondents said subprime guidelines got tougher.

About 30 percent of U.S. respondents said they experienced weaker demand for residential home loans over the past three months, similar to the previous survey, while 45 percent saw weaker demand for nontraditional loans, up from 30 percent in the prior survey.

Approximately 80 percent of domestic respondents noted that lending standards for home equity lines of credit tightened over the last thee months, up from 70 percent in April.

Interestingly, just 10 percent reported weaker demand for Helocs, down from 20 percent in the April survey.

About 30 percent of U.S. respondents said their bank had securitized or sold conforming-jumbo loans over the past three months, and nearly half (45 percent) expect to do so over the second half of 2008.

Looking forward, about 45 percent of domestic respondents expect their banks to tighten lending standards on prime residential mortgage loans in the second half of 2008, and roughly 30 percent think they will tighten standards on the loans in the first half of 2009.

With respect to nonprime loans (nontraditional/subprime), about 65 percent of respondents who originated such loans anticipate tightening their lending standards in the second half the year, and roughly half believe they will do the same in the first half of 2009.

Sounds like it’s going to be even more difficult clearing all that housing inventory…

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