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SENIOR LOAN OFFICER SURVEY REVEALS INCREASE IN LOAN DEMAND A survey of senior loan officers released by the Federal Reserve shows lending standards mostly unchanged but demand for residential real estate loans strengthened. The October survey asked 68 domestic banks and 23 U.S. branches of foreign institutions about the lending standards and loan demand they've dealt with over the past three months. According to the Fed, "Respondents reported little change in residential real estate lending standards on balance. Significant fractions of banks reported a strengthening of demand for commercial real estate loans, residential mortgages, and auto loans, on balance." Regarding residential real estate lending, standards for both prime and nontraditional mortgages remained mostly unchanged for the past three months. When asked about credit standards for prime mortgages, 59 out of 64 respondents said standards were largely the same. Two banks reported standards had "tightened somewhat," while three said they had "eased somewhat." Among banks originating nontraditional loans, responses regarding standards were split evenly. Twenty-one loan officers said their standards "remained basically unchanged," while one bank each reported somewhat tighter or somewhat looser standards. Only four banks said they originate subprime mortgages, and all of them reported basically unchanged credit standards. Demand for residential mortgage loans continued to increase on net, "although the fractions of banks that reported an increase in demand for both prime and nontraditional residential mortgage loans declined from their levels in the July survey." While 34 banks said demand for prime purchase mortgages was about the same, 21 reported "moderately stronger" demand, and four said demand was "substantially stronger" since July. 32 Only four respondents saw "moderately weaker" demand. For nontraditional mortgages, 17 banks experienced no change in demand, while five saw it strengthen somewhat. Two banks reported a decline in demand. Demand for subprime mortgages did not change, banks reported. While standards for mortgage loans eased a bit, they grew a little tighter for home equity lines of credit (HELOC). When asked about HELOC credit standards, 57 loan officers said standards were mostly unchanged, while two said they had eased somewhat. Six respondents said credit standards had tightened somewhat. Demand for HELOC was mostly the same, with 45 banks seeing no change. Twelve said demand was moderately stronger, and eight said it was moderately weaker. The survey also included special questions related to lending mortgages insured by the Federal Housing Administration (FHA) and the banks' participation in the revised Home Affordable Refinance Program (HARP 2.0). "[A] majority of domestic banks indicated that their lending standards for approving an application for an FHA-insured purchase mortgage were about the same as in 2006 for a borrower with a credit score of 660, but that standards had tightened for borrowers with lower FICO scores," the report said. On the subject of HARP, lenders "continued to indicate that a material portion of refinance applications at their bank was attributable to" the program—64.5 percent said at least 10 percent of their refinance activity in the last three months was HARP-related. Based on their prior experiences with HARP, 87.6 percent of respondents said they anticipate at least 40 percent of HARP applications will be approved and successfully completed. CREDIT UNIONS POINT TO TROUBLING ASPECTS OF PROPOSED CFPB RULES The National Association of Federal Credit Unions (NAFCU) expressed its opposition to the Consumer Financial Protection Bureau's (CFPB) proposed rule on mortgage application and settlement disclosures. The association asserted last month in a letter to the CFPB that the rule places undue regulatory burdens on credit unions and will likely cause some institutions to leave the mortgage market altogether. In the first quarter of this year, credit unions originated about 8 percent of mortgages nationwide, an increase over the previous record high of 5 percent. This increase, according to NAFCU VP Carrie Hunt, is evidence "that members are not only highly satisfied with their credit unions but also that consumers overall are increasingly aware of the value that credit unions provide." However, despite the fact that consumers are turning to credit unions more often for mortgage-related services, Hunt foresees some credit unions cutting down or eliminating their mortgage divisions due to "the costs and burden associated with the constantly increasing and unforgiving intensity of regulations imposed." In the letter to the CFPB, NAFCU points to several specific areas of concern. As written, the CFPB's proposed rule makes an exception for lenders that originate no more than five mortgages per year. NAFCU suggests the exemption instead be extended to any credit union with $175 million or less in assets. The association suggests this would better fit the CFPB's obligation to offer some regulatory relief to small businesses, something the Dodd-Frank Act expressly requires the government agency to consider. Another area of concern cited by NAFCU is construction-only and vacant land loans. The CFPB's rule provides exemptions for home equity lines of credit and reverse mortgages but neglects to mention construction-only or vacant land loans. According to NAFCU, "Many aspects of the proposed rule are simply incongruous for these types of loans and would provide little to no benefit for borrowers." NAFCU said it is "critically important" the CFPB understand the full consequences of its actions on the market and "does everything in its power to ensure that its actions do not cause the tightening of credit by driving small institutions out of the marketplace."

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