Standards for nontraditional mortgages tighten somewhat
Lending standards on prime mortgages remained unchanged over the past three months, but lenders still tightened their standards somewhat for nontraditional mortgages, the Federal Reserve said.
The Fed interviewed loan officers and summarized their feedback in its July 2012 Senior Loan Officer Opinion Survey on bank lending practices.
For the same period, a large portion of loan officers surveyed for the study reported stronger demand for both prime and nontraditional mortgages.
"In contrast, changes in both lending standards and demand for home equity lines of credit were relatively muted on net over the past three months," the Fed said in its report.
Most of the large banks interviewed said they partook in the Home Affordable Refinance Program over the past three months, allowing more homeowners to enter into the government's refinance program. About two-thirds of the HARP participants said they expect more than 60% of the loan applications to be approved and successfully completed.
A large portion of the banks that participated in HARP say they restricted their involvement in the refinancing program to mortgages they already serviced or held.
"Many banks also reported that credit overlays that they had imposed on top of the HARP requirements were at least somewhat important factors in limiting their participation — a significant fraction of respondents reported having been unwilling to offer HARP refinance loans to some customers with high loan-to-value ratios, limited or nonstandard documentation of income or assets, or low FICO scores," the Fed said.