Lending Standards have not tightened for all Lenders

The following are excerpts from the weekly interest rate newsletter published by HSH.com :

“In terms of consumer borrowing, the good news of sorts is that while banks have tightened lending conditions broadly or even significantly in some cases that this has happened at a minority of banks. For example, the latest Senior Loan Officer Opinion Survey from the Federal Reserve revealed that 38% of banks responding tightened terms and conditions for credit card accounts, up from 13.6% in the fourth quarter, while 16% of banks making auto loans tightened and 21.8% of those making consumer loans did. With employment metrics falling sharply, its not surprising that risks of lending unsecured credit are on the rise, and lending against an asset that devalues quickly such as an auto carries an additional layer of risk as well.

Lending for homes has fared much better. For residential mortgage loans that can be bought by Fannie or Freddie, 91.1% of banks in the survey said standards were unchanged; only 5.4% reported tightening and that was offset by 3.6% who said they loosened underwriting criteria. That was largely the case for government backed loans (90.7% unchanged, 1.9% tighter, 7.4% looser). Loans that met QM standards but weren’t to be sold to the GSEs saw about an 85% unchanged rate, but more that 11% or respondents did tighten, and for jumbos, the figure reported showed 81.5% of banks were about the same and the rest were tightening. Non-QM and jumbo borrowers will have the most difficult time of the bunch getting credit, but overall conditions are not that much worse than they have been, at least not yet. That’s good news for the housing market, which is having its most challenging spring homebuying season in memory.

But homes are being sold. The Mortgage Bankers Association reported that overall applications for mortgages gained by 0.1% in the week ending May 1, but surprisingly, applications for refinancing retreated for a third consecutive week (-1.7%) despite low rates. Of course, nearly 4 million homeowners are now in forbearance plans and won’t be refinancing anytime soon, and those homeowners not skipping payments but who have lost jobs and are on unemployment won’t be jumping in, either, which does take at least some of the air out of the refinancing balloon. Conversely, applications for purchase-money mortgages rose for the third week in a row, gaining 5.8% for the period. That’s the longest string of positive reading since the end of December 2019-early January 2020 and surprising, given the difficulty of the sales climate from social distancing measures.”

The following are interest rate quotes from Allen Bond of Wells Fargo Mortgage: