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DEMAND, CREDIT TERMS FOR LOANS BOTH EASE By Mark Lieberman, Economist for the Five Star Institute The percentage of banks reporting stronger demand for mortgage loans dropped in the first quarter of 2013 from the fourth quarter of last year, and a slightly greater percentage reported easing lending standards, the Federal Reserve reported last month. The results of the Fed���s quarterly Senior Loan Officers Opinion Survey are consistent with anecdotal reports that mortgage loans are becoming easier to obtain. The survey results are reported as a diffusion index���that is, the percentage of respondents saying they are easing lending standards somewhat or considerably is subtracted from those who report they are tightening standards for a range of different lending products. In the case of ���traditional��� mortgage loans, 1.5 percent of respondents reported ���somewhat��� tighter standings, while 4.6 percent reported standards easing somewhat, and 1.5 percent reported standards easing considerably for a net 6.1 percent easing. Meanwhile, 92.3 percent said standards were unchanged. In the fourth quarter of 2012, a net 1.6 percent reported an easing in standards. While the survey results suggest a direction of lending standards, they could be misleading: A bank that has tightened lending standards as much as possible may not necessarily ease them but cannot tighten any further. (It would be the equivalent of tightening a faucet as far as possible���not tightening further does not mean loosening it.) The Fed survey found a net 2.9 percent of respondents reported tightening standards for ���nontraditional��� mortgages, and 20 percent reported tighter standards for subprime loans, though 61 of the 71 banks surveyed said they do not make subprime loans. Nontraditional mortgages, the Federal Reserve said, include but are not limited to adjustablerate mortgages with multiple payment options, interest-only mortgages, and Alt-A products such as mortgages with limited income verification and mortgages secured by non-owner-occupied properties. A net 19 percent of banks surveyed said demand for prime mortgages was stronger in the first quarter than in the fourth. In the previous survey, a net 21 percent of banks said demand for prime mortgages was strengthening. As many respondents said demand for nontraditional mortgage loans in the first quarter had strengthened as those who said demand weakened; in the previous quarterly survey, a net 3 percent said demand for nontraditional loans was stronger. Net demand for subprime loans in the first quarter was flat to the prior report. Demand for commercial real estate (CRE) loans continued to strengthen in the first quarter with a net 40.3 percent of banks reporting stronger demand compared with a net 44.1 percent in the fourth quarter (after a net 23.4 percent in the third). A net 13.4 percent of banks reported easing standards on CRE loans in the first quarter compared with a net 8.8 percent in the fourth. IMPROVING MARKETS LIST GROWS WITH ALL 50 STATES REPRESENTED All 50 states plus the District of Columbia were represented in February���s Improving Markets Index (IMI), the National Association of Home Builders (NAHB) and First American announced. Last year at the same time, just 36 states were represented. For the month of February, the IMI grew to include 259 markets, up from 242 in January. ���The fact that all 50 states now have at least one metro on the improving list shows that the housing recovery has substantial momentum and continues to expand from one market to the next,��� said Rick Judson, 2013 NAHB chairman and a homebuilder from Charlotte, North Carolina. In order to be recognized as ���improving,��� metro areas need to show improvement from their 30 respective troughs in housing permits, employment, and house prices for at least six consecutive months. In February, 20 metros were added to the list, while three dropped out. Among the list���s newcomers were Rome, Georgia; Fort Wayne, Indiana; Myrtle Beach, South Carolina; Albuquerque, New Mexico; and Racine, Wisconsin. David Crowe, NAHB���s chief economist, noted that more than 70 percent of the 361 metros covered by the index were listed as improving in February. ���That���s a far cry from when we initiated this index with just 12 improving metros in September of 2011 for the purpose of highlighting places that didn���t fit the mold of the national headlines,��� Crowe said. BULK OF MORTGAGERELATED TARP FUNDS REMAIN UNTOUCHED When Congress authorized some $700 billion in taxpayer dollars for the Troubled Asset Relief Program (TARP) in October 2008, Treasury designated $45.6 billion specifically for mortgage-related programs to assist homeowners at risk of foreclosure. However, a little more than four years later, more than $40 billion of that foreclosure prevention purse remains unspent, according to a report from the Government Accountability Office (GAO). The three major programs the money was set aside for include the Making Home Affordable (MHA) program with its keystone Home Affordable Modification Program (HAMP); the Housing Finance Agency Innovation fund for the Hardest Hit Housing Markets, more commonly known as the Hardest Hit Fund (HHF); and HUD���s Federal Housing Administration (FHA) Refinance of Borrowers in Negative Equity Positions, commonly called the FHA Short Refinance program. With a stated goal of assisting 3 million to 4 million homeowners, HAMP has achieved about 1.1 million permanent modifications as of September 2012. The program will accept applicants until the end of this year. As a whole, the Making Home Affordable program has spent about $4 billion of the $29.9 billion it was allocated. About $6.5 billion more ���could be spent on incentives for HAMP modifications and other MHA interventions that were already in effect as of September 2012,��� according to GOA. That leaves about $19.4 billion untouched. Treasury allocated $7.6 billion to HHF, of which about $1.5 billion has been dispersed. Through September 2012, states reported having spent about $742 million to help more than 77,000 homeowners and $199 million on administrative expenses. The FHA Short Refinance program was allotted $8.1 billion. As of September 30, 2012, FHA had insured 1,774 loans with a total face value of $307 million under the refinance program. Treasury had paid out about $7.2 million to cover any losses associated with providing the new loans and placed $50 million in a reserve account to cover any future loss claims, although no funds have been disbursed for loss claim payments. KNOW THIS Banks repossessed 171,080 homes during the last three months of 2012, RealtyTrac reported, pushing the quarterly tally up 9% from Q3 2012.

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