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Demand for mortgages down

The housing market is slowly cooling off, causing many different effects on the real estate world.

One major effect is that less people are taking out mortgages. There is a plethora of unsold homes on the market, with seemingly little interest in anyone buying them.

People are worried about the current interest rates, and would rather sit tight to see what happens then spring into action to buy a house and finance it, only to regret it in a few months.

An article from the Dow Jones News Wire posted on The Wall Street Journal, “Banks report weak demand for mortgages as market cools,” discusses the current lending environment.

“With the once red-hot housing sector cooling, domestic U.S. banks reported weaker demand for mortgage loans in recent months, while demand for consumer loans also slowed, according to a Federal Reserve study released Monday. ‘In line with other evidence of a slowdown in housing activity this year, domestic institutions reported that demand for mortgages to purchase homes had continued to weaken over the previous three months,’ the Fed said in its latest quarterly survey of banks' senior loan officers.”

The survey from the Fed reports that a whopping 60 percent of domestic lenders have seen a decrease in sales over the past couple of months.

The survey listed results from 56 domestic banks, and 17 other foreign banks operating in the United States.

“As for credit standards, domestic banks reported on balance little change from the previous three months for credit-card and non-credit-card consumer loans. Meanwhile, about 10% of domestic banks on net said they had eased credit standards for residential mortgages, unchanged from the previous survey period. Demand for business and commercial real estate loans also remained largely unchanged from the previous survey period, the latest Fed survey shows.”

In addition to regular mortgages, the survey also looks at sub-prime mortgages and other non-traditional loans.

“On the sub-prime front, banks' holdings were "generally small." For example, of the 30 domestic banks with sub-prime mortgages on the books, almost three-fourths said that sub-prime loans accounted for less than 5% of their residential mortgages. Another one-fifth of banks holding sub-prime loans said their share of such products was between 5% and 15%, while the remainder of the banks reported that sub-prime loans represented more than 20% of their residential mortgages.”

“Meanwhile, banks held more non-traditional mortgages -- such as adjustable rate mortgages and interest-only mortgages -- than sub-prime loans.”

The Fed also reported that a small percentage of banks said that they saw a slight improvement on the amount of people who had become delinquent on their non-traditional loans.

“‘Looking forward, nearly 30% of banks, on net, indicated that they expect the quality of the non-traditional residential mortgages currently on their books will deteriorate somewhat over the next 12 months,’ the Fed survey said.”

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