OFR Report Examines Impact of Banks’ Lending Standards on Availability of Mortgage Loans

According to a report published today by the Office of Financial Research (“OFR”), changes in credit standards reported in the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey are a leading indicator of the financial industry’s vulnerability to shocks. The report, entitled The Real Consequences of Bank Mortgage Lending, matched responses to the survey with mortgage application information from the Home Mortgage Disclosure Act (“HMDA”) between 1990 and 2013.

The HMDA data containing both accepted and denied applications enabled the OFR to observe changes in denial rates concurrent with changing standards reported by loan offices. The OFR found that “reports of tightened standards are associated with an increase of about 1 percentage point in denial rates (conditioning on changes in macroeconomic conditions and borrower credit quality), implying a reduction in aggregate mortgage credit of about $690 million per quarter.”

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