The home mortgage market improved last quarter as demand increased and many banks eased their lending standards for the most creditworthy borrowers, the Federal Reserve said Monday.
Banks also loosened lending criteria for a variety of other consumer and business loans as the economy improved and demand picked up.
The developments could foreshadow a turnaround in housing, which slowed this year amid last year's increases in mortgage rates and higher home prices. More favorable credit conditions have been cited as a driver of stronger economic growth recently. Last week, the government said the economy grew at a better-than-expected annual rate of 4% in the second quarter.
Credit standards for many loans, including mortgages, are more stringent than before the 2008 crisis, but they've eased in recent months, the Fed's senior loan officer survey shows.
Mortgage demand started to flag as borrowing costs edged up after Federal Reserve officials signaled in
Rates for 30-year fixed mortgages rose nearly a percentage point to 4.46% by the end of last year. But rates have drifted down (4.12% last week), in part because the Fed indicated it's in no rush to raise short-term interest rates.
Half the banks surveyed by the Fed in July said demand for prime mortgages was stronger the past three months. Lenders had reported weakening demand the previous three quarters.
Even more encouraging, nearly a quarter of the banks said they eased credit standards for prime mortgages, the most since the 2007 housing crash. Only about 6% toughened their criteria.
Several large banks also loosened standards, boosted credit limits and reduced the minimum credit score for credit card loans. A surge in borrowing also boosted business loans, with more than 30% of banks citing stronger demand from businesses; about 5% reported weaker demand.
About 11% of banks surveyed eased their standards for loans to midsize and large companies, and 8% did so for small businesses, while none tightened.
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