Financial Services - February 2011

The weekly Primary Mortgage Market Survey conducted by the Federal Home Loan Mortgage Corporation (FHLMC, or FreddieMac) showed that both the 30-year and 15-year fixed mortgage rates decreased slightly for the week ending February 18.

  • The rate for 30-year fixed-rate mortgages dropped 5 basis points to 5.0 percent for the week ending February 18. The rate averaged 4.93 percent a year earlier. The 30-year fixed rate is up from the record low of 4.17 percent set the week ending November 12.
  • The rate for 15-year fixed-rate mortgages averaged 4.27 percent, down 2 basis points from the previous week. The rate is slightly lower than the year-ago rate, which averaged 4.33 percent. The record low rate of 3.57 percent for 15-year fixed-rate mortgages was set the week of November 12.

In its weekly survey of mortgage bankers, commercial banks, and thrifts, the Mortgage Bankers Association reported a decline in mortgage applications for the week ending February 11.

  • The seasonally adjusted purchase applications index decreased 5.9 percent from a week earlier, declining for the third consecutive week even as mortgage rates remain relatively low.
  • The seasonally adjusted refinance index decreased 11.4 percent from the previous week and is at its lowest point since the week ending July 3, 2009. The refinance share of mortgage activity currently represents 64 percent of total application volume.

The Federal Deposit Insurance Corporation (FDIC) press releases list eight Sixth Federal Reserve District banks among the 22 closed by regulators through February 18, 2011. During 2010, 52 District banks were closed.

  • Regulators closed two District banks on February 18: Habersham Bank (Clarksville, Ga.) with $387.6 million in assets and Citizens Bank of Effingham (Springfield, Ga.) with $214.3 million in assets.
  • Two banks in California were also closed, bringing the nationwide total of failed FDIC-insured institutions to 22 so far for the year.
  • Georgia leads the nation with six bank failures during 2011.
  • The District ended 2010 with 52 failures, surpassing the number of District failures that occurred in 2009, when a total of 42 banks were closed.
  • The Federal Reserve Bank of St. Louis provides an interactive map of bank failures.

The latest Senior Loan Officer Opinion Survey from the Federal Reserve Board of Governors (covering fourth-quarter 2010 activity) indicated a net fraction of banks continued to ease standards for commercial and industrial loans.

  • On net, domestic banks reported easing standards on commercial and industrial (C&I) loans to large and middle-market firms—in particular, reducing the spreads of loan rates over the banks' cost of funds and trimming the costs of credit lines. Few banks reported changing terms on loans to small firms.
  • Many banks cited increased competition from other banks and nonbank lenders as well as a more favorable or less uncertain economic outlook as important factors behind the recent easing of terms and standards. Some banks reported reductions in defaults by borrowers in the public debt market, increased tolerance for risk, and industry-specific improvements.

Domestic banks reported strengthening demand for C&I loans.

  • Compared to the October survey, a larger fraction of banks reported  that the number of inquiries regarding new or increased lines of credit continued to rise.
  • Three-fourths of the banks cited funding needs for merger and acquisition activity as reasons for increased demand. More than half indicated reduced borrowing from other banks or nonbank sources. Some banks noted increased financing needs by customers for inventories and accounts receivable, reduced investment in plants, and equipment as reasons for the increase in demand for C&I loans.

Domestic banks reported tightening standards on nontraditional mortgage loans and little change in the standards on prime residential mortgage loans.

  • The net fraction of banks reporting tightening of standards on nontraditional mortgage loans has increased for two consecutive quarters.

Demand for both prime and nontraditional closed-end residential mortgage loans weakened for the second consecutive survey.

Standards on commercial real estate (CRE) loans from domestic banks were unchanged.

  • About the same number of banks as in the previous survey indicated they had reduced the size of lines of credit for commercial construction.

CRE loan demand recorded its strongest reading since early 2006.

  • On net, about 10 percent of domestic banks reported increased demand for CRE loans.