Fed Provides Deeper Look at Lending Standards on Residential Mortgages | Armonk Real Estate

The Federal Reserve Board recently released its survey of senior bank loan officers. The January 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the fourth quarter of 2014.

The January 2015 iteration of the survey featured revised and expanded categories of residential real estate loans to reflect the Consumer Financial Protection Bureau’s (CFPB) qualified mortgage (QM) rules and provide more detailed information on the mortgage market. According to the survey lending standards over the fourth quarter of 2014 declined, on net, across most CFPB-defined residential mortgage categories*.

The figure below depicts the net percentage of senior bank officers reporting that lending standards at their bank had eased over the fourth quarter of 2014. The net change is calculated by subtracting the share of banks reporting tighter lending standards from the proportion reporting easier standards. According to the figure lending standards for GSE-eligible residential mortgages eased the most, 12.5%, on net.

While not to the degree of GSE-eligible residential mortgages, lending standards on those residential mortgages that are considered a qualifying mortgage eased more than similar residential mortgages that do not qualify. For example, lending standards on qualifying jumbo residential mortgages eased more, on net, 7.7%, then lending standards for non-qualifying jumbo residential mortgages, 3.5%. Similarly, lending standards on qualifying non-jumbo, but non-GSE eligible, residential mortgages eased more, on net, 3.4%, than lending standards on non-qualifying, non-jumbo residential mortgages. Moreover, lending standards on non-qualifying, non-jumbo residential mortgages were unchanged over the fourth quarter of 2014, similar to the lending standards on subprime residential mortgages.

In addition, lending standards on jumbo mortgages eased more, on net, than similarly-situated non-jumbo mortgages. For example, lending standards on qualifying jumbo mortgages eased more, on net, 7.7%, than lending standards on qualifying non-jumbo and non-GSE-eligible residential mortgages, 3.4%. Similarly, net lending standards on non-qualifying jumbo residential mortgages eased more, 3.5% than non-qualifying non-jumbo residential mortgages, 0.0%. Despite the greater change toward easier lending standards amongst jumbo residential mortgages relative to similarly situated non-jumbo mortgages over the fourth quarter of 2014, a previous post illustrated that lending standards on “non-conforming” residential mortgages are considered tighter, on net relative to the midpoint of the range of standards between 2005 and the second quarter of 2014, than “conforming” residential mortgages.