Lenders continued to raise the bar on credit standards over the past three months, making it more difficult for potential homeowners to jump into the market. However, loan officers also reported weaker loan demand.
According to the April Federal Reserve senior loan officer survey, credit standards on mortgage loans that banks categorize as nontraditional residential mortgages and subprime residential mortgage tightened.
The survey interviewed 74 domestic banks and found that when it comes to prime residential loans, the difference in credit changes over the past three months is divided.
Of the 70 banks that responded, 51 said standards remain basically unchanged, nine eased somewhat and 10 tightened somewhat.
However, on the level of nontraditional residential mortgages, eight said it tightened somewhat and three said it tightened considerably. But 32 respondents responded that their bank didn't originate non-traditional mortgages at all.
With even less respondents, only seven banks responded to the subprime question, and of that seven, one said credit standards tightened somewhat and two banks said credit standards tightened considerably.
But as credit standards tightened, loan officers reported that the demand wasn't there either.
Out of 70 responses, 28 people said demand was the same, while 27 said it was moderately weaker and only 12 posted a moderately stronger demand.
Then for nontraditional mortgages, of the 37 responses, 12 said demand was moderately weaker compared to 17 that said demand was the same.
This drop in demand can also be seen in lender earnings, with more banks revealing in their first-quarter earnings that things are tougher now in mortgage finance compared to a year prior.
In the current earnings season, Wells Fargo (WFC) reported record net income of $5.9 billion, up 14%, or $1.05 per diluted common share, for first quarter 2014, where as JPMorgan Chase (JPM) recorded a first quarter 2014 net income of $5.3 billion, a drop from $6.5 billion in the first quarter of 2013.
Both banks posted significant drawbacks in their mortgage divisions.
