Housing Bubble

Home mortgage lending tightened according to Fed

February 01, 2003

The survey of Bank Lending Practices released yesterday by the Federal Reserve revealed that Banks are becoming more selective in their home mortgage lending and have been tightening home loan standards in recent months. In the quarterly report the Fed found "evidence that some banks are beginning to tighten standards on home mortgages appeared for the second consecutive survey".

Of the Banks surveyed it was noted that the share of banks tightening standards on residential mortgage loans edged up to 11 percent in January from 10 percent in the October survey and that "these were the first two indications of any noticeable tightening in over a decade". None of the Banks reported easing of standards.

The number of banks reporting stronger demand for mortgages to purchase homes over the past three months dropped to 7 percent in January from 40 percent in the previous survey. Additionally the share of banks reporting substantially stronger demand fell from 14 percent in October to 2 percent in the current survey. This apparent softening in home mortgage demand contrasts with reports last week of strong existing homes sales and the Commerce Departments report of record-breaking housing starts, suggesting a possibility that the housing market may be changing.

The survey also found about 15 percent of domestic banks tightened standards on credit card loans over the past three months although the share of banks that reported tightening standards for other consumer loans edged down to 9 percent from 15 percent in October. Few reported tightening terms on either credit card loans or other consumer loans over the past three months and demand for consumer loans was unchanged over the period.

Source: Federal Reserve Survey on Bank Lending Practices