The Federal Reserve’s Senior Loan Officer Opinion Survey, a survey of up to 80 large domestic banks and 24 U.S. branches and agencies of foreign banks, asked questions about the changes in standards and terms of the banks’ lending and the state of business and household demand for loans.
Conducted every quarter, the report released for the second quarter showed lending standards are tightening across the board, including in the residential real estate loan sector.
Loans to households have seen tighter lending standards across all residential real estate (RRE) loans, with a significant number of banks reporting they tightened standards more on non-qualified-mortgage (non-QM) jumbo residential loans and home equity lines of credit (HELOC), than on loans that are government-sponsored enterprise (GSE)-eligible and government loans. A moderate number of the respondent banks reported tightening standards on QM jumbo, non-QM non-jumbo, subprime, and QM non-jumbo, and non-GSE eligible loans.
A “modest” share of banks reported tightening standards on GSE-eligible and government loans.
As standards have tightened, the survey also noted the demand for all RRE loans has gone down.
“Regarding RRE loans, significant net shares of banks reported that lending standards for GSE-eligible residential loans and jumbo mortgage loans were on the tighter ends of their ranges,” the Fed said in its review of the survey. “For government residential mortgages, a moderate net share of banks reported standards toward the tighter end of the range.
“Additionally, a significant net share of banks reported that standards on HELOCs were on the tighter end of their range,” it added. “The net share of banks reporting that levels were at the tighter end of the range was higher in the July 2023 survey than in the July 2022 survey for all RRE loan categories, especially GSE-eligible and government loans, which had been near their midpoint in July 2022.”
Looking forward, a moderate share of banks reported they expected to tighten standards on GSE-eligible loans, while a significant share anticipated tightening standards on nonconforming jumbo loans. Cited reasons for these expectations included a less favorable or more uncertain economic outlook, an expected deterioration in collateral values, and an expected deterioration in the credit quality of commercial real estate and other loans.
Respondent banks also mentioned an expected reduction in risk tolerance, an expected deterioration in their liquidity position, increased concerns about funding costs and deposit outflows, and increased concerns about the effects of legislative, supervisory, or accounting changes may account for further tightening of lending standards.