This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Banks Still Reluctant to Ease Mortgage Lending Terms: Fed Survey

NEW YORK ( TheStreet) -- Banks are ramping up the marketing of home-purchase loans to borrowers as refinancing volumes plummet, but there are still few signs that they are ready to ease lending standards materially.

According to the latest Senior Loan Officer Survey conducted by the Federal Reserve, "a modest net fraction" of large banks said they had eased standards for prime residential mortgages over the past three months, while small banks had left standards unchanged. There was no significant change in standards for sub-prime and nontraditional mortgages.

The survey, sent out following the 100-basis-point rise in mortgage rates in May, asked respondents special questions about the impact of rising rates on lending.

Banks reported having experienced weaker demand for prime and nontraditional mortgages in the past three months. A modest net fraction of banks reported that the composition of new mortgage applications, including applications for both home purchase loans and mortgage refinancing, shifted away from fixed-rate mortgages and toward adjustable-rate mortgages since the spring.

More than 90% of the respondents reported "substantially lower" refinancing applications.

In response to the drop in refinancing volumes, many banks reported having reduced the processing time for home-purchase loan applications and said they had increased their marketing of home purchase loans.

Still, few reported reducing origination and processing fees or minimum downpayment requirements and FICO credit scores for approving home loans. Banks remain extremely tightfisted in approving applications for mortgages eligible for purchased by the government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC). Banks said they were less willing to approve loans to borrowers with combinations of FICO scores between 620 and 720 and down payments between 10% and 20%.

Banks saw mortgage production revenues and profitability crater in the third quarter, with JPMorgan Chase (JPM) reporting a small loss and Wells Fargo (WFC) seeing a 43% drop in mortgage production income.

The decline in refinancing volumes, which have been exceptionally high in the last few years due to low interest rates, is unlikely to be offset by revenue from the purchase market. A modest fraction of lenders said they expect purchase applications to increase.

Some industry observers have suggested that banks faced with declining refinancing activity might be more willing to relax standards and compete for business but so far it looks like borrowers are still waiting for banks to open the spigot.

-- Written by Shanthi Bharatwaj New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,987.51 -61.49 -0.36%
S&P 500 1,985.54 -11.91 -0.60%
NASDAQ 4,567.5980 -24.2080 -0.53%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs