Fed and NAHB Surveys Document Subprime Mortgage Effects
The Federal Reserve released its quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices, covering the February-to-April time frame, on May 14. For the first time, the Fed asked banks about changing credit standards for three types of first-lien home mortgages — prime, subprime and “nontraditional” (IO&PO ARMs and Alt-A products).
The survey results showed substantial net tightening of credit standards on all three types over the prior three months:
- 56% of respondents in the subprime area
- 45% for nontraditional mortgages
- 15% in the prime mortgage market
Although the Fed’s commentary downplayed the importance of the relatively modest tightening in the prime area, 15% is hardly a minor shift and it follows a sizeable tightening of overall mortgage lending standards in the previous survey.
NAHB surveyed builders of all sizes in early May, following up on our surveys of mortgage lending impacts in March and April, and we now have a solid response rate to the May survey.
We find that 44% of all builders reported adverse effects on their home sales during the previous month, and nearly 78% of large companies (starting more than 100 units per year) said their sales had been reduced because of tighter mortgage lending standards. Among companies reporting adverse impacts, the median reduction was 15%.
We also found adverse impacts on sales cancellations, heavily concentrated among big builders:
- 28% of all respondents said their cancellations had been adversely affected.
- 79% of companies starting more than 100 units per year reported adverse impacts.
The affected companies (on average) said that the upswing in cancellations in April had wiped out 10% of their backlog of signed sales contracts.