Demand for Business Loans Stays Strong

thePoint
October 5, 2004

Demand for commercial loans continues to build over recent months, while home mortgage and consumer lending are cooling down, according to a Federal Reserve Board survey of senior loan officers reported in the American Banker.

Roughly 44% of the loan officers told the Fed that demand at large and middle-market companies increased in the last three months, against 39.3% in April, when the Fed last polled lenders. The new findings were published August 30, 2004.

Still, 13% of the lenders indicated demand for commercial loans had dropped recently, while only 10.7% said so in April.

Roughly a quarter of the 54 bankers reported lending standards for commercial loans eased. More than 90% of the domestic bankers who reported easing loan standards said they did so because of aggressive competition.

Consumer lending is moving in the opposite direction.

In April's survey, only 6% of the bankers reported consumer loan demand had diminished. In the new survey results, that figure jumped to 27%.

This survey is conducted about four times a year to gauge loan standards and demand. The Fed typically adds a special set of questions to the survey, and this most recent query covered adjustable-rate mortgages.

They found that hybrid adjustable-rate mortgages (ARMs) are soaring in popularity. About a third of the loan officers surveyed said hybrid ARMs make up more than 50% of the home mortgage loans on their books.

About half of the lenders said conventional ARMs make up less than 10% of the home mortgage loans on their books. In the case of conventional ARMs, the respondents indicated that on average almost 90% of these loans will be repriced within the next 12 months. In contrast, banks estimated that on average only 12% of hybrid ARMs will be repriced within one year. Almost 60% of hybrid ARMs on average will not be repriced for at least three years.

ARMs attracted attention in February when Fed Chairman Alan Greenspan said customers should consider using them to lower their mortgage payments. In March, the Federal Deposit Insurance Corporation reported that ARMs more than doubled their share of the mortgage market last year, to 32%.

Survey results are available at http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200407/default.htm.

Reprinted from The Point for Credit Union Research and Advice at http://thepoint.cuna.org/.