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Economy

Commercial Real Estate Trends for 2018

By | Commercial Real Estate, Economy, Interest rates

2017 was a great year overall for the commercial real estate industry. Some of the trends will carry over into 2018. Here’s a short list of items to consider going into 2018.

Economic trends

Interest rates are rising. The problem is that only the short-term rates are rising. The longer-term rates are only marginally higher. If the Fed keeps raising the fed funds rate and the 10-year US Treasury doesn’t increase as well, the Fed could end up with an inverted yield curve. This could lead to a slowing economy. At the least, it could lead to some lenders not funding more loans because their net interest margins are shrinking– that alone could potentially slow down the economy. For commercial real estate, increasing rates will affect the spread between cap rates and borrowing rates– the smaller the margin between them the harder it is to find profitable investments.

GDP is growing at a better clip. GDP growth in recent quarters has been around 3%. Some are predicting 4% for 2018. Not everyone shares those forecasts, but one forecast from Goldman Sachs seems to think at 4% the economy will also be more productive– that’s a most welcome word (let’s read that again, productive) that hasn’t been spoken in a while and can replace the disruptive word we have heard so much for the past several years. The Wall Street Journal recently published a great article on how productivity might rebound. Do watch for technology to lead out increased productivity– no, surfing the net doesn’t count! Here’s one article discussing the forecasts of economists from several commercial real estate brokers.

The labor market is tight. Yes, unemployment is the lowest in years and could go lower below 4%. However, that also means wages should be going up and that could lead to inflation. So while everyone is looking at unemployment, it will be important to look at wage growth and inflation. The one thing that helps keep those in check is… here’s that word again, productivity. The more productive the labor market is the less pressure there will be on higher inflation. Of course, if you are developing anything, you are already keenly aware of the shortage of construction labor.

The CMBS market survived the wall of maturities. The CMBS market is looking strong. A great article on the CMBS market is out at Globestreet.com. Three items to watch here. One, improvements in servicing agreements. This should make CMBS more user-friendly. Two, B-piece buyers are being more selective, more credit sensitive. As a result, CMBS loan candidates really have to meet or exceed underwriting requirements.  Third, the declining delinquency rate on CMBS to continue. The third one, with so much new volume coming into CMBS, delinquency would be expected to come down as new vintages of mortgages are funded and packaged into CMBS pools. This time around, delinquencies may remain lower as lenders and investors have been more conservative in their underwriting and deal selection.

International trade agreements. President Trump has pulled the USA out of some important trade agreements that could have an impact on our economy– its a bit early to tell. So this is a story to follow in 2018. Shipping and ports are the busiest they’ve been in years! So time will tell on this one.

Trends by property type

Multifamily will continue to be a hot market. However, watch out for rising vacancies as an early sign of the market softening. Another important development with the revised tax laws will be affordable housing credits. Keep looking for opportunities to serve the middle class, row houses, transit-oriented developments, and affordable rental units in most areas of the country would be a very welcome development. Finally, check out the chic micro units! These could be a very lucrative sector of multifamily– think luxury hotel rates with leases that last more than one night.

Retail continues to transform itself. As strong retail sales end the holiday season, it will be important to see how retail continues to transform itself with more attractions and creative tenants to draw traffic. Traffic is the key to retail’s success. Tenants are also finding ways to bridge the gap between physical stores and online sales through the omni-channel strategy. It has been said that consumers like to be able to return online purchases in physical stores because of the convenience. And retailers like it because the consumer ends up purchasing three times as much while returning the one item purchased online.

Industrial space has been in high demand with online retailers seeking locations closer to their customers. Expect that to continue, however, watch out for supply. With average construction times at less than 12 months, additional supply can be made available quickly and outstrip demand. So watch the available space in your market and the time it takes to fill up that new space. Look for rents to increase at a slower pace for signs that the market is becoming more balanced.

Office sector seems to be in a sweet spot. Tenants are using new office buildings in the suburbs to attract talent. There are new buildings being constructed in urban areas too. Construction cranes are in the air in most primary and secondary markets. Can demand absorb all the new space? Watch out for short-term oversupply. Watch the trend in the office flex product; it might become more than that as tenants and employees continue to redefine office work.

Rents have been increasing in 2017. Expect that to continue in 2018, unless the economy softens. Watch those vacancy rates in 2018 for any early signs of trouble in 2019!

Finally, look for emerging technologies to improve all aspects of the commercial real estate industry. Technology will provide easier access to data allowing more informed decisions and better service. At least that’s the hope. So embrace it before it embraces you.

We hope 2018 will be a great year for you. Happy Holidays and a prosperous New Year to you from us at Tower Commerical Mortgage!

 

What Commercial Real Estate Trends To Focus On For 2017

By | Bond Market, Commercial Real Estate, Economy, Federal Reserve, Interest rates, Regulation

2017 is almost here! We will be watching the following commercial real estate trends in 2017. These will be important especially if you need financing or are looking for a new property to develop or buy and need financing to do it.

Unemployment

One of the biggest trends to watch will be unemployment– particularly over the next two years. If you followed only unemployment you would have a good feel for where commercial real estate values are headed. Cap rates tend to follow the unemployment rate. So understanding the health of the labor market is an important indicator. It affects how much office space a company needs, the sales volume of a retailer, the industrial space needed for distributors and manufacturers, how many travelers are booking hotel rooms and household formation which drives occupancy and affordability of multifamily. All of this is dependent upon how many people are employed. Closely related unemployment is interest rates.

Interest Rates

What the Fed does will influence interest rates for sure. But unemployment is also what the Fed is watching that influences them to take action too. The Fed’s dual mandate to influence unemployment and control inflation is only done by changing interest rates. The Fed has the ability to change short-term rates by changing their federal funds rate. That’s on the short end of the yield curve. They can also influence the longer end of the market through their HUGE multi-trillion dollar bond portfolio.  It’s the long end that can impact borrowing rates. Raising short-term rates has a direct impact on long-term rates.

Inflation

Recently interest rates spiked up because of the Fed’s anticipated decision to increase the federal funds rate. But it was also because of market factors such as an increase in commodities and President-elect Trump’s election win and commitment to infrastructure spending.  The bond market has had a big reaction to those two events. It will take time for both increasing commodity prices and any infrastructure spending to impact an increase in prices generally that would lead to inflation. At this time, inflation is still not a concern. But with low unemployment, the largest drivers of inflation is wage growth and with low unemployment, employers have to pay more to get qualified workers. More people working with rising wages will eventually lead to inflation. So we are watching this closely too.

Tax Reform

With President-elect Trump, tax reform is a top priority. The benefit of this is he’s a commercial real estate developer and operator too! So we can expect that whatever actually happens to tax reform, there will be some beneficial change that is positive for commercial real estate. One of the likely benefits is the 1031 exchange will remain. That’s a close item of the tax reform that we will be following, in addition to lower tax rates– another plus for economic growth.

Financial reform

The Dodd-Frank Act, unfortunately, is not going away. But with President-elect Trump, some of its provisions hopefully will. By reducing the regulations that banks are under they will be more nimble to expand their commercial real estate lending in smart ways. Banks do not need regulations to force them to make better loans. Banks are very cognizant of making safe and sound loans. The fewer regulation banks are forced to comply with allows them to make loans that make sense for both them and their borrowers. Yes, there may have been some bad actors, but generally speaking, less banking regulation will allow our economy to function more efficiently, productively and grow at a healthier rate.

To much success in 2017!

Happy new year!

 

Fed Raised Its Rate And It Is Old News

By | Bond Market, Economy, Federal Reserve, Interest rates

This week the Fed raised their overnight lending rate 25 basis points to .75%. But this is old news. The market basically did it for them with the bond market’s overreaction to the election results with president-elect Trump. So what! The Fed raised their rate 25 basis points. The 10 year US treasury yield has already risen from a July 8th low of 1.38% to 2.6% as of today– that’s 122 basis points. As interests rates rise, bond prices decline and the bond market has been selling off since July– two sides of the same coin. So, did the bond market really see a Trump win back in July? The bond market is very conservative, so did they see a republican win? People have been saying the increase in interest rates generally is a reaction to the Trump win, but that’s not so, because the increase started in July. Or is there an underlying trend that the press hasn’t picked up on yet? Political events and politicians really don’t have a large impact longer term on economic trends unless the effect major policy errors or war. The longer term trends typically are due to larger underlying pressures.

Higher rates attract foreign investment which bids up an already strong dollar which is great for imports, terrible for U.S. exports and foreign investments if you have them. Stocks have moved higher but many anticipate the stable dividend stocks with bond-like qualities which have been so strong for so long will also go the way of other income producing assets– aka bonds. Precious metals have fallen as the dollar has increased– that’s a typical inverse relationship. Commodities have fallen too as they are priced in U.S. dollars and have an inverse pricing relationship– except for the price of oil which has rallied approaching $60. Say what? An oil rally? Some have suggested that oil is the reason why bonds have sold off since July, pushing interest rates higher. Trump’s campaign statements about infrastructure spending and lower taxes to generate growth in the economy has further spiked interest rates.

Back to oil for a minute. Why is oil rising? Is it because of increased world demand or even U.S. demand? Has OPEC changed their stance? Has Saudi Arabia? What is the reason for oil prices bidding up? I do know, just like my car’s engine needs oil to run smoothly, the world economy needs oil to operate as well, so is demand coming from somewhere? Or is oil supply the driving factor? Someone knows, I don’t.

These are the current economic conditions. They are also the market’s expectation of rising interest rates. We have all had 10 years to think about these relationships and the implications of increasing interest rates. We knew this would happen, right? So that is why the Fed’s rate increase is old news. Further and more important, Trump’s win is also probably an overreaction even if the price of oil is an overreaction. Nevertheless, some have discussed that a 10 year U.S. Treasury yield of 3% would be enough to slow down the U.S. economy, which is already having its own troubles trying to grow, let alone the world economy. Is 3% possible? Or is the there finally enough strength in the world economy that a rise in U.S. rates wouldn’t be harmful? I don’t know if 3% is the tipping point.

Interest rates are likely going to come back down a bit in the short term, but probably not to the prior July low. I think the bond market has overreacted to recent events. But I think longer term the trend in rates has begun. Having said that, I am not a forecaster of interest rates, nor do I even try. It’s better to follow the market, is my motto. If you can’t beat them, join them. The Fed’s 2017 forecast is for 3 more rate increases.

Anyway, here’s my reasoning for why I think the interest rate trend is moving higher– at a very slow pace. These trends take time to develop. Trump’s policies will have to make their way through Congress and that takes time as we all know. Commodity prices are low and therefore, finished goods prices are not going to be going higher until producers start paying more for raw commodities. A strong dollar helps import prices remain low, so no inflationary pressure there either. Global inflation isn’t a concern currently either. Inflation is typically a treat at the end of a strong period of growth– something we have not had.

U.S. wage growth while ticking up is also not terrible even with a low unemployment rate. But that never seems to stay low for long and with labor market participation rates at historic lows with baby boomers retiring, employers are left with younger new entrants who have less experience and are more willing to work (forced they may say) for a lower wage. So wage pressures will remain subdued for a while as well. So I think we have 1 or 2 years more before we really start to see rates return to more normal, historical levels with U.S. Treasurys eventually settling in the 4 to 6% range. Nevertheless, the chart below helps me, at least, keep a rising rate increase in perspective. Look how long it has taken rates to drop from the earily 1980s highs. I don’t see an overnight return to high interest rates, do you? I’m not worried.

fredgraph

Another trend that is being discussed is this one on unemployment. As mentioned above, unemployment never stays at low for very long. When it is at low under 5%, guess what happens? An economic recession occurs. This pattern has occurred almost every time since the 1950s and probably longer than that. Why we can’t remain at low unemployment for long is a mistery. I don’t think economists have fully figured it out, but you’ll earn a Nobel prize for sure if you did! If you have, please let me know! But then the optimist in me sees the opportunity when unemployment is high on the other side of the recession. High unemployment is a good sign that the economy is starting to recover. See the chart below. And remember, none of this should be considered investment advice. These are just my observations.

Unemployment chart.

Additional sources for analysis.

Here’s the Fed’s public announcement on their rate decision.

The Wall Street Journal had a good article on the news. (WSJ)

 

What Trump’s Election Could Do for Commercial Real Estate

By | Commercial Real Estate, Economy, Regulation

Now that the election results are in and our country’s president and congress makeup has been determined, we can look forward to a further period of growth and opportunity in commercial real estate.

Trump’s acceptance speech

It was reassuring to hear President-elect Trump’s acceptance speech right after the election results were in. He immediately highlighted the need for more government spending:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”

For those unfamiliar with American politics, the idea that a Republican president would put more government spending at the top of his agenda is anathema to the party’s traditional “smaller government” stance. Unfortunately, as Milton Friedman said, “We are all Keynesians now.”  While a smaller federal government with a smaller budget would be ideal, if increased growth and prosperity results from more of this type of spending (rather than the prior eight years of transfer payments) it should improve the outlook for our country.

In case you nodded off in your Economics 101 class, Keynesian Economics is the theory that the government should increase spending (and cut taxes) to stimulate a slow economy, and conversely, should cut spending (and raise taxes) when the economy is at risk of overheating.  Of course, that’s theory.

Nevertheless

The one thing that matters about what Trump said, is that he wants to actually develop and redevelop our infrastructure. That to me means that where ever that happens, the properties close to it will also rise in value or be a great redevelopment site as well. That translates into more opportunities for all.

Commercial real estate plays an important role in the U.S. economy. As new policies are written and legislation moves forward and as regulatory burdens are lessened, it will be good for the industry, your tenants, and the economy generally will benefit from fair and steady government policy that incentivizes growth.

We at Tower Commercial Mortgage are optimistic that the president-elect will develop and successfully advance a pro-growth agenda for all Americans. What is good for commercial real estate is good for our country!

Much success!

Banks Are Far Better Prepared For Next Downturn

By | Economy, Financial Markets, Lenders

In a recent interview with American Banker, Comptroller of the Currency Thomas Curry acknowledged the challenges facing the banking industry but said recent reforms have made the U.S. banking system more resilient. “I do think that this is an unsettled environment currently,” Curry remarked. “I think our focus as prudential regulators is really on making sure that our supervised entities are prepared for all environments. … Whatever happens with the economy, we have a much stronger banking industry.” He cited higher industrywide capital levels, improved liquidity, and more robust loss provisioning as reasons to be confident that the industry is better prepared for the next downturn. Curry also discussed efforts by the Office of the Comptroller of the Currency to warn about asset classes where banks are weakening their standards, such as subprime auto loans. He added that cybersecurity is a “constant worry,” indicating that a massive enough security breach could threaten the solvency of a smaller bank, and incidents at major banks could undermine confidence in the entire banking industry. “The first step is to have the banks be the first line of defense,” Curry said. “Then the value of the regulatory system, at least in the banking sector, is to be able to supplement that and get a horizontal view of what’s going on in the entire industry.”

From “OCC’s Curry: Banks Are Far Better Prepared for Next Downturn”
American Banker (02/11/16) Wack, Kevin

Fed Seeing More Cause for Pause on Rates

By | Bond Market, Economy, Federal Reserve

Minutes show officials grappling with growing threats from market volatility, China slowdown; inflation concerns

Federal Reserve officials appear increasingly reluctant to raise short-term interest rates at their March policy meeting, and possibly beyond, amid market turbulence, China’s dimmed outlook and indications that inflation could stay at low levels longer than expected.

Officials struggled with uncertainty about these developments at their January policy meeting, according to minutes of the gathering released by the central bank Wednesday. Since the meeting, some officials have started speaking out about their desire to wait to raise interest rates again until they’re sure the U.S. economic outlook isn’t deteriorating and inflation isn’t stuck below their 2% target.

At the January 26-27 gathering, officials “agreed that uncertainty had increased, and many saw these developments as increasing the downside risks to the outlook,” said the minutes, which were released with their regular three-week lag.

The Fed in January held its benchmark short-term interest rate steady at between 0.25% and 0.5%. The central bank increased that rate by a quarter percentage point in December and penciled in four more rate increases for 2016, driven by a view that inflation would start rising as hiring and the economy continued to expand.

The Fed’s next policy meeting is March 15-16. Traders in futures markets see a 94% chance it won’t raise rates then, an 83% chance it won’t move before midyear and about a 50% chance the Fed won’t move rates at all in 2016, according to the Chicago Mercantile Exchange.

“Inflation is not likely to pick up substantially until the second half of the year,” Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said at the University of Delaware on Tuesday. “It might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike.”

Fed Chairwoman Janet Yellen expressed uncertainty about the outlook in testimony to Congress last week without taking a March move off the table. She did emphasize that Fed policy is not on a set course and would be responsive to new developments.

“If inflation is slower to return to target, monetary policy normalization should be unhurried,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said Tuesday. “A more gradual approach is an appropriate response to headwinds from abroad that slow exports, and financial volatility that raises the cost of funds to many firms.”

Of course nothing is yet set. Markets can quickly reverse and the Fed will have a chance to look at more data on inflation and jobs before making a call next month.

Stock markets have already shown some signs of stabilizing. Moreover, economic data haven’t been all bad. The Federal Reserve Bank of Atlanta estimates economic output is expanding at 2.6% annual rate in the first quarter, up notably from a 0.7% pace in the fourth. Moreover wage growth shows signs of accelerating as the jobless rate falls.

The Fed’s policy statement in January was striking because officials decided not to make a judgment about what they call the “balance of risks” to the economy—whether they believed the economy was likely to perform more poorly than their forecasts or exceed their expectations.

The balance of risks matters because it is an indication of whether they are inclined to raise rates again, hold steady or cut them. Some officials already concluded the economy risked underperforming, but other wanted to withhold judgment. Their unwillingness to make any declaration about the balance of risks underscored their hesitance about raising rates.

“Most [officials] were of the view that there was not yet enough evidence to indicate whether the balance of risks to the medium-term outlook had changed materially, but others judged that recent developments had increased the level of downside risks or that the risks were no longer balanced,” the minutes said.

Peter Hooper, chief economist at Deutsche Bank Securities, said he expected the Fed to lower its growth and inflation forecasts when officials next meet in March. That would be a precursor to moving interest-rate plans into neutral.

Mr. Hooper started the year projecting three Fed rate increases this year. He has now downshifted to one later in the year.

The minutes showed the Fed’s own staff economists saw a risk that economic growth and inflation would underperform expectations and unemployment could be higher than forecast, “mainly reflecting the greater uncertainty about global economic prospects and the financial market turbulence in the United States and abroad.”

Expected inflation is an important wild card. Bond-market measures and survey measures of expected future inflation are dropping. Fed officials don’t want to see inflation expectations drift lower. Inflation has already been running below the Fed’s 2% target for more than 3½ years.

Further declines in inflation expectations indicate investors and households might be losing confidence in the central bank’s ability to drive inflation up to target. Undershooting it is an indication of an economy’s lack of vitality, like low blood pressure in a hospital patient.

“A number of participants indicated that, in light of recent developments, they viewed the outlook for inflation as somewhat more uncertain or saw the risks as being to the downside,” the minutes said. “Several participants reiterated the importance of monitoring inflation developments closely to confirm that inflation was evolving along the path anticipated” by the Fed.

The Fed used the word “uncertain” or “uncertainty” 14 times in the January minutes, compared to seven times in December when the central bank raised rates, and six times in October when it telegraphed that a rate increase could be coming.

via (wsj)

Lenders Tighten Lending Standards for Some Loans

By | Commercial mortgages, Commercial Real Estate, Economy

Banks cited the recent uncertainty surrounding economic forecasts as driving their decision

Lenders tightened lending standards on commercial and industrial loans and commercial real-estate loans in the fourth quarter of 2015 and expect to tighten further in 2016, according to a Federal Reserve survey of senior loan officers.

Banks cited the recent uncertainty surrounding economic forecasts as driving their decision to tighten commercial lending standards. Some lenders also said they were worried about the performance of the oil and gas industries, which have been battered by falling prices.

Survey respondents also said they expect interest rates on many types of commercial loans to increase and “a significant fraction of domestic banks” said they expected delinquencies to rise.

The survey results suggest banks could be starting to worry that a boom in commercial real estate could be coming to an end now that the Federal Reserve has raised short-term interest rates off from the near-zero level where they hovered for seven years. Fed officials have indicated they plan to raise rates further in 2016, which could dampen the commercial real-estate market.

Still, lenders said they had seen “stronger demand” for commercial real-estate loans in the fourth quarter of last year.

Banks showed less concern about lending to households, however.

Some lenders said they had eased standards for home loans, including the larger “jumbo” loans. Banks also said they expected to ease mortgage standards further in 2016.

Home sales have been healthy as consumers have become more confident in the economic expansion. The National Association of Realtors said last month that existing home sales reached 5.26 million in 2015, the highest annual level since 2006. That has pushed prices up and reduced available inventories, the group said.

via (wsj)

Commercial Mortgage Interest Rates Likely to Remain Low For a Long Time

By | Bond Market, Economy, Federal Reserve, Interest rates

As the Federal Reserve seems set on raising overnight Fed funds rates this December, longer term US Treasury security yields will likely remain low for a longer time. Which means interest rates on commercial mortgages will remain attractive going into 2016. There are several reasons the bond market is reacting this way to movements in short-term interest rates. The bond market is more concerned about overseas economies being weak, the strong US dollar, wages rising ever so slowly, inflation unlikely to reach the Fed’s 2 percent target and commodity prices low especially energy prices.  With the Fed all but certain to raise rates, the yield on the 10-year Treasury note remains flat as it has all year. This is a key bond yield for commercial property owners to watch because residential and commercial mortgages are priced based upon the current yield on the 10-year US Treasury bond.

So regardless what the Fed does to effect short-term interest rates, don’t expect to see longer term rates increasing soon.  See the Wall Street Journal article on this topic.

Fed Tipping Toward December Rate Hike, Minutes Show

By | Bond Market, Economy, Federal Reserve, Financial Markets, Interest rates

The official minutes of the Fed’s October 2015 meeting are available here. The key point making headlines in the press is the following section of the minutes:

“the Committee decided to indicate that, in determining whether it would be appropriate to raise the target range at its next meeting, it would assess both realized and expected progress toward its objectives of maximum employment and 2 percent inflation. Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting, provided that unanticipated shocks do not adversely affect the economic outlook and that incoming data support the expectation that labor market conditions will continue to improve and that inflation will return to the Committee’s 2 percent objective over the medium term. Members saw the updated language as leaving policy options open for the next meeting. However, a couple of members expressed concern that this wording change could be misinterpreted as signaling too strongly the expectation that the target range for the federal funds rate would be increased at the Committee’s next meeting.”

The Wall Street Journal reports that the Fed “minutes stated ‘some’ Fed officials felt in October it was already time to raise rates. ‘Some others’ believed the economy wasn’t ready. The wording meant that minorities on both sides of the Fed’s rate debate are pulling in different directions, with a large center inside the central bank inclined to move.”

But even if they do increase short term rates, a trend towards increasing rates will be slow, “At the same time, the Fed minutes included several new signals that after the Fed does move rates higher, the subsequent path of rate increases is likely to be exceptionally shallow and gradual.” Additionally the Wall Street Journal noted, “Looking ahead, Fed officials see new factors—most notably low productivity growth and an aging population—continuing to put downward pressure on growth. As a result, Fed staff argued the Fed’s target interest rate will rise only gradually as the economy strengthens. Many Fed officials have embraced that view and are trying to telegraph it to blunt the blow to markets of the first rate increase.”

Looking out longer-term,

“Beyond near-term planning on rates, discussions at the Fed turned at the October meeting to an ominous longer-run outlook.

With rates already low and not likely to move up much, the Fed’s target interest rate could return to near zero in the years ahead if the economy is hit by some new shock and the Fed decides to cut rates to cushion the blow.

One such shock might be if the Fed itself raises rates more quickly in the months ahead than the economy can bear.

“They could end up killing things pretty fast,” Mr. Blitz said. The other side of that risk, however, is that the Fed could cause a new bubble if it leaves rates too low. “They don’t have a lot of room here to get it wrong.”

Read the full Wall Street Journal article here.

Demand for Commercial Real Estate Loans Increases

By | Commercial mortgages, Commercial Real Estate, Economy, Lenders

The Federal Reserve says demand for commercial, industrial, and commercial real estate loans rose in the second quarter, along with demand for home-purchase, auto, and credit card loans. The central bank’s survey of senior loan officers shows stronger home loan demand across most categories, including home equity lines of credit, and modest net fractions of banks eased underwriting standards, particularly for jumbo loans that comply with the Consumer Financial Protection Bureau’s qualified mortgage rules. However, most banks still do not give mortgages to subprime borrowers and have not eased lending standards for home equity lines of credit. Although residential real estate lending standards were “at least somewhat tighter” than the midpoints of the last decade’s ranges for all home-loan categories, a small number of banks tightened loan standards for credit cards or auto loans to subprime borrowers relative to midpoints for those loans over the same period. A “measured easing” of credit conditions for mortgages was seen mainly among GSE-eligible and government-insured mortgages.
via (wsj)