Low Consumer Demand Clouds Bank Origination Outlook

Nearly three-quarters of commercial banks surveyed by the Federal Reserve Board cited the lack of demand for single-family loans by creditworthy borrowers as the major factor for the slow pace of mortgage lending.

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The July survey of senior loan officers released Monday afternoon confirms that lending standards on residential loans remained tight over the past three months.  Only four of the 55 banks in the survey indicated any easing and three tightened their standards.

But 44 of the banks reported they expect originations in the second half would be unchanged or lower compared to the first half.

The loan officers largely dismissed suggestions by Fed surveyors that the risks associated with mortgage lending or the lack of a secondary market for non-conforming loans was holding up production.

Only three of the 44 banks expressed concerns that a pending reduction in the maximum loan limit to $625,500 is a “very important” factor in their origination forecast.

However, over 90% of the 44 banks cited downbeat forecasts for the economy and housing prices as the major reason for their outlook.

“All of the respondents‚Ķcited reduced or unchanged demand from creditworthy borrowers and almost all of these respondents also pointed to unfavorable or uncertain forecasts for the broad economy and for house prices,” the Fed survey says.

Twelve of the 44 banks also cited increased concerns about legislative, supervisory and accounting changes as being “very important” in shaping their origination forecast.

(The banks had to submit their survey responses by July 26 before the stock market tumble during the first week of August.)

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