Banks moved to ease lending standards for most mortgage loan products during the second quarter, according to a loan officer opinion survey published this week by the Federal Reserve Board.
The quarterly survey found that banks loosened their underwriting standards most notably for jumbo products, including qualified mortgages (QM), jumbo mortgages and non-QM jumbo mortgages.
Two exceptions to the trend were for government-sponsored enterprise (GSE) eligible loans, where standards were unchanged on net, and for subprime mortgages, the report said.
In 2020, as the COVID-19 pandemic took hold and fears of economic instability rose, banks opted to tighten underwriting standards for mortgage loan products. These worries are now showing signs of alleviating, though the virus is resurgent.
Banks also reported stronger demand for residential real estate loans over the second quarter, with significant demand for QM and non-QM jumbo mortgages. Meanwhile, demand for government residential mortgages, revolving home equity lines of credit (HELOCs) and subprime residential mortgage loans remained unchanged, the report said.
Overall, feedback from participants – 75 domestic banks and 22 U.S. branches and agencies of foreign banks— concluded that lending standards have eased since 2020 and that the net share of banks reporting standards on the tighter end of their range fell enough to offset most of last year’s increase.
However, despite the loosening of standards, they continue to be elevated for residential real estate loan products when compared to standards in 2019, the report noted. Banks reported that standards were the easiest pre-financial crisis (2005 to 2007) and tightest post-financial crisis (2008 to 2010) across all loan categories.
“These results indicate that the ranges of standards in consideration have not changed in a significant way over the course of the pandemic, facilitating comparisons of the levels of standards over time,” added the report.
Additionally, the survey revealed that banks eased standards across all three consumer loans categories in the second quarter, with credit card loans, auto loans, and other consumer loans seeing a reduction in minimum credit score requirements and an increase in credit limits. Demand for these products was also elevated, the report concluded.
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