Credit Standards Stay Put for Prime Mortgage Products

A newly released survey of senior loan officers around the country finds credit standards remained largely the same on basic prime mortgage products over the latest quarter, while demand came in weaker.

According to the Federal Reserve’s Senior Loan Officer Opinion Survey, released Monday, 14.3 percent of bank respondents reported tightening their credit standards on prime residential mortgages “somewhat,” just slightly higher than the 12.9 percent that eased standards somewhat. The vast majority—72.9 percent—said standards “remained basically unchanged.”

On the topic of subprime loans: On net, the handful of banks offering such products reported tightening, though more than half still said standards changed little.

Even discounting normal seasonal variations, demand for all mortgage products—prime, subprime, and nontraditional—was reported as moderately to substantially weaker on net over the three-month period. Demand dropped most for prime residential loans, with a combined 42.9 percent of banks reporting less interest in mortgages compared to only 17.1 percent reporting more.

Responses largely read the same for revolving home equity lines of credit: Among loan officers from 70 banks, 84.3 percent said credit standards have remained mostly the same, though among those who reported changes, a slight net majority said they have eased.

Meanwhile, just more than half of respondents saw unchanged demand over the quarter, with slightly more seeing demand weaken (25.7 percent) rather than strengthen (20.0 percent).

The Fed’s survey follows a report released last week by the Urban Institute in which researchers contend that lower credit scores have been a result of a change in market share, not a drop in standards.