The January 2011 Senior Loan Officer Opinion Survey released by the Federal Reserve shows a more positive outlook for certain sectors of the lending industry, but says little improvement is expected in the residential real estate market this year.
The survey polled 57 domestic banks and 22 U.S. branches and agencies of foreign banks.
The survey found that a small amount of banks continued to ease conditions for commercial and industrial loans during the fourth quarter of 2010, responding to a moderate increase in demand for these types of loans. Banks reported a more favorable outlook and increased competition from other banks and lenders for these types of loans.
About 45 percent of banks responded that they experienced recent growth in their residential mortgage portfolios, despite somewhat weakened demand.
Around one-third of banks reported having originated a large amount of loans that are not eligible for guarantee by the Federal Housing Administration or cannot be sold to Fannie Mae and Freddie Mac.
Additionally, around 35 percent of banks said they expect their holdings of closed-end residential real estate loans to increase.
According to an analysis by TD Economics, consumer credit has an optimistic outlook. The analysis is in line with the Fed's survey that shows banks are easing standards on consumer credit. But, TD chief economist Craig Alexander warns, credit quality can only improve so much without an improvement in mortgage delinquencies.
""Without a resolution in housing, improvement in other sectors of the economy can only push the gas pedal so far,"" Alexander says. ""At the same time, the fact that credit quality is improving outside of mortgages shows that resolving issues in housing and commercial real estate could lead to a much faster pace of economic growth.""
National Association of Realtors president Ron Phipps agrees that standards for mortgage lending must become more lenient to promote growth in the market. He said on a podcast last week that ""the pendulum on the credit side has swung too far,"" meaning that credit-worthy people are having difficulty getting mortgages because of the more stricter standards banks have begun adhering to in the wake of the foreclosure crisis.
Phipps encouraged ""responsible, appropriate mortgage decisions to give credit-worthy people mortgages.""