Financial Services - May 2010

Rates on 30-year and 15-year fixed-rate mortgages are currently at the lowest levels of the year.

  • The 30-year fixed-rate mortgage for the week ending May 21, 2010, averaged 4.84 percent, 9 basis points lower than a week earlier. The rate has not been lower than this since December 10, 2009, when it averaged 4.81 percent. At this time last year, the rate averaged 4.82 percent.
  • The 15-year fixed-rate mortgage averaged 4.24 percent, down 6 basis points from the previous week. At this time last year, the rate averaged 4.50 percent. The current rate is the lowest since Freddie Mac began tracking it in August 1991.

The volume of mortgage loan and refinance applications remains well below the high levels last seen in April 2009.

  • The seasonally adjusted market volume index of mortgage applications, which includes purchases and refinances, declined 1.5 percent for the week ending May 14, 2010; the seasonally adjusted refinance index increased 14.5 percent from the previous week.
  • The refinance share of mortgage activity is currently at 68.1 percent of total application volume.
  • Purchase applications have declined almost 20 percent over the past month.

A small net fraction of banks reported easing their standards for commercial and industrial (C&I) loans.

  • The latest Senior Loan Officer Opinion Survey from the Fed's Board of Governors (covering Q1 2010 activity) marked the first time since 2006 that banks reportedly eased standards in two consecutive quarters.
  • Large domestic banks were primarily responsible for easing standards to larger C&I borrowers, trimming pricing terms, including the cost of credit lines and the spreads of loan rates over their cost of funds. None of the smaller banks reported easing their standards on C&I loans to larger firms. Most domestic banks reported little change in standards on C&I loans to smaller firms.
  • According to the survey, three factors exerting the greatest influence on C&I lending policies were competitive pressures, the economic outlook, and tolerance for risk in the C&I loan market.

C&I loan demand weakened further.

  • Weakening of loan demand was concentrated at smaller domestic banks while large domestic banks reported little change in demand on net.
  • Most banks that reported weaker demand cited borrowers' reduced need to finance plant and equipment investment; the large majority indicated that demand for inventory and accounts receivable financing declined.
  • Banks that reported increased demand for C&I loans cited an increased need to finance inventories and accounts receivables and a pickup in mergers and acquisitions.

Most banks reported essentially no change in their standards for prime and nontraditional mortgage loans.

Demand for prime mortgages and home equity loans weakened further.

A significant number of domestic banks continued to report tightening terms on CRE loans.

Domestic banks reported weaker demand for CRE loans.

  • The net fraction of banks reporting weaker demand moved below 10 percent for the first time since the financial crisis began.