8.18.2016 Useful Insights from Recent Senior Loan Officer Opinion Survey

The just-released July 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices (or SLOOS) includes some useful insights regarding changes in the standards and terms on residential real estate and consumer loans, as well as demand for these loans.

The survey results were tabulated from responses by 71 domestic banks and 23 U.S. branches and agencies of foreign banks. Here’s a brief recap of the highlights of the survey.

Residential Real Estate Mortgage Loans

According to the survey, standards on all categories of residential real estate (RRE) mortgage loans were little changed during the second quarter. The only exceptions are GSE-eligible mortgage loans and subprime residential mortgages.

A moderate net fraction of banks eased standards for GSE-eligible mortgage loans during the quarter, while a moderate net fraction of banks tightened standards for subprime residential mortgages. Lending standards were basically unchanged for all other categories of RRE loans.

Demand for most types of RRE mortgage loans strengthened over the second quarter, the survey found. These included GSE-eligible, government, QM non-jumbo non-GSE-eligible, QM jumbo residential, and non-QM jumbo residential mortgages, for which significant net fractions of banks reported stronger demand. Meanwhile, a moderate net fraction of banks reported stronger demand for non-QM, non-jumbo residential mortgages.

The survey found that credit standards were little changed for approving revolving HELOC applications. Also, a significant fraction of banks reported that demand for revolving HELOCs strengthened during the second quarter.

Consumer Loans

According to the survey, a modest net fraction of banks were more willing to make consumer installment loans during the second quarter than were during the first quarter of this year. A modest net fraction of banks also eased lending standards on credit cards and tightened lending standards for auto loans. However, lending standards on other consumer loans remained basically unchanged during the quarter.

Also, a modest net fraction of banks widened interest rate spreads charged on outstanding credit card balances over their cost of funds. A modest net fraction of banks also reduced minimum credit scores for credit card loans. However, a moderate net fraction of banks widened interest rate spreads over their cost of funds on auto loans during the second quarter.

Terms on consumer loans other than credit card and auto loans remained basically unchanged during the quarter, while demand for consumer loans strengthened, the survey found. Demand for credit card loans strengthened among a modest net fraction of banks. Meanwhile, a moderate net fraction of banks reported stronger demand for auto loans and consumer loans other than credit card and auto loans during the second quarter.

We’re interested in hearing from you. What kind of trends are you seeing in your market area when it comes to residential real estate and consumer loans? Send me an email at steven@lendtrade.com.

8.11.2016 Report Indicates Borrowers Are Handling Home Equity Debt Responsibly

In a recent article, we discussed how home equity lending is heating up as the housing industry recovers from the recession. According to a recent Mortgage Monitor Report from Black Knight Financial Services, tappable home equity rose by $260 billion during the first quarter of this year.

In addition, nearly a half-million homeowners who had been underwater on their mortgages got their heads back above water during the first quarter. The national negative equity rate is now down to 5.6%, compared to 29% just four years ago.

Delinquencies Are Down

Now there’s more good news on the home equity lending front: Home-related delinquencies are down in two out of three categories in the current quarter compared to the previous quarter, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin. This appears to indicate that homeowners are handling their home equity loan responsibilities well.

HELOC delinquencies dropped 3 basis points in the current quarter to a level of 1.15% of all HELOC accounts. Property improvement loan delinquencies also fell 3 basis points to a level of 0.89% of all accounts. While home equity loan (or closed-end loan) delinquencies rose 6 basis points to a level of 2.74% of all accounts, this came after a 23 basis point drop the previous quarter.

Also, the first quarter marked the first time since 2008 that both HELOC and home equity loan delinquencies were at or below their 15-year averages.

“As the housing market continues its slow and steady recovery, consumers have more valuable equity at stake, which makes their loan payments even more of a top priority,” stated the ABA’s chief economist James Chessen. “Growing equity also makes new home equity loans a viable option for qualified homeowners.”

Chessen added that the market for home equity loans and lines will probably continue to grow as a larger pool of qualified borrowers looks to take advantage of low rates in order to make property improvements or pay off higher-interest debt.

Reasons for the Recovery

Experts have cited a number of possible reasons for the improving health of the home equity lending market. Atop the list is the recovering housing industry: Home prices nationwide are up 35 percent over the past four years as measured by the S&P/Case-Shiller Home Price Index. Higher home prices mean homeowners have more equity.

Other reasons for the home equity lending rebound are rising consumer confidence, continued low interest rates, falling unemployment and the increase in tappable home equity, as noted above. Also, some lenders are looking to offset faltering mortgage originations by focusing on home equity lending.

Chessen sums it up as follows: “More people have jobs, wages are higher and home values have increased. Even with a mild slowdown in the economy in the first quarter, consumers have shown a remarkable ability to ensure their debt levels are manageable.”

We’re interested in hearing from you. What do you think about the current state of the home equity lending market? Send me an email at steven@lendtrade.com.

8.1.2016 Financial Reforms Don’t Gain Traction in This Election Year

Well, we’re finally hitting the home stretch of the seemingly never-ending 2016 Presidential election campaign. The conventions are behind us and in about three months we’ll actually cast ballots and choose our next President.

One effect of the Presidential election is that many pieces of proposed legislation have been unable to move forward due to the uncertainty in Washington, D.C. Financial services reform legislation is no exception.

House Bill Would Replace Dodd-Frank

One example of such legislation is the Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, or Financial CHOICE Act. (By the way, who comes up with these long-winded names and acronyms for bills, anyway?) This bill, which was introduced in the House of Representatives in June, is aimed at replacing the Dodd–Frank Wall Street Reform and Consumer Protection Act and fostering a pro-growth economic climate. Specifically, the Act would:

  • End taxpayer-funded bailouts of big banks.
  • Relieve the regulatory burdens on banks that elect to be strongly capitalized.
  • Toughen the penalties on those who commit financial fraud.
  • Increase the level of accountability on financial regulators.

The Financial CHOICE Act would make the following 5 financial services reforms:

  1. Repeal the authority of the Financial Stability Oversight Committee (FSOC) to designate systemically important financial institutions.
  2. Put all regulatory agencies on a budget.
  3. Make the Federal Reserve’s prudential regulatory and financial supervision activities subject to the Congressional appropriations process.
  4. Repeal the Volker rule.
  5. Eliminate many of what are considered to be unnecessary Dodd-Frank disclosures, like pay ratios.

In the Senate, however, financial services reform has gotten very little attention in this election year. As the countdown to Election Day begins, there’s no reason to believe this is going to change before November 8 — making it likely that comprehensive financial reform won’t happen until the next Congress is sworn in.

Action Via the Appropriations Process?

But it’s possible that targeted reform could still happen sooner rather than later via the appropriations process. Only July 7, the House passed the Financial Services and General Government Appropriations bill. Specifically, this bill would:

  • Reduce the IRS budget below 2008 levels to $10.9 billion.
  • Bring the CFPB’s funding under the annual Congressional appropriations process, thus increasing Congressional oversight of the agency.
  • Appoint a five-member commission to head the CFPB, instead of a single Director.
  • Delay the CFPB rule on short-term, small dollar lending.
  • Cap the SEC’s budget at $1.5 billion — a level that’s $50 million lower than it is in fiscal 2016.
  • Rescind the unobligated balances of the SEC’s reserve fund, which the SEC can spend without Congressional oversight.
  • Prohibit the SEC from requiring the disclosure of political contributions in SEC filings.

The Senate version of this Appropriations bill contains fewer substantive changes. Regardless, Hill watchers say that the regular appropriations process likely won’t reach a resolution by the end of this year. This would require Congress to pass a continuing resolution that might or might not contain these provisions.

We’re interested in hearing from you. What’s your take on financial services reform legislation? Send me an email at steven@lendtrade.com.