The Federal Reserve Bank periodically conducts a survey among senior loan officers at major banks on current lending practices. There are generally around 70 U.S. and foreign banks with U.S. branches that respond to the survey, and as responses are opinions and thus more anecdotal than quantitative and the universe of respondents is small, not all results can be reported numerically.
The January survey reported that about 15 percent of respondents said standards for nontraditional mortgages were tightened by their institution, the second month in a row that small increases were noted. Standards for prime closed-end residential real estate loans and home equity loans were little changed, on balance, for the entire quarter.
According to a Federal Reserve statistical release on assets and liabilities of commercial banks, aggregate holdings of closed-end residential mortgages increased steadily in the second half of 2010. Several "special questions" are asked in each survey, and for the January report senior loan officers were asked to assess the contribution of various possible factors to this increase.
About 45 percent of respondents indicated that their banks had experienced such growth and the majority noted the "relative attractiveness of the risk-adjusted returns on these loans compared with assets" and reported a willingness to expand their balance sheets accordingly. About one-third reported they had originated a larger volume of loans that were ineligible for sale to the GSEs or FHA. A smaller number attributed the growth to reductions in charge-offs or pay downs or to a slowdown in processing the loans out to the secondary market. Only two banks attributed any part of the portfolio growth to loan repurchases. About 35 percent of respondents on net said they expected that their bank's holdings of such loans would continue to increase.
"Approve/ineligible loans are generally backed by borrowers who have demonstrated the willingness and ability to stay current on their debts, but for one reason or another they just don't qualify for an agency loan" said MND's managing editor Adam Quinones. He added, "This type of loan paper would be a great source of collateral to jumpstart the non-agency secondary mortgage market. We suggested this might be a good idea last year when Fannie Mae announced their Loan Quality Initiative".
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Source: http://www.mortgagenewsdaily.com/02012011_lending_standards.asp
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