In a Switch, Beige Book Reports Improvements for Banks

WASHINGTON — Bankers were a little bit busier this fall as consumers continued to try to reduce their mortgage debt and demand for commercial mortgages picked up, according to the Federal Reserve Board's latest economic survey.

That was a sharp reversal for some parts of the country after the Fed's October survey, known as the "Beige Book," which showed consumers borrowing even less than usual.

"Overall bank lending increased slightly since the previous report, and home refinancing grew at a more rapid pace," according to the Fed's survey.

Districts in New York, Philadelphia, Cleveland, and Kansas City all reported increased loan demand.

Bankers from the Philadelphia District reported "slight overall growth in loan volumes since the previous Beige Book." Some explained the rise in loan demand was due to foreign banks exiting the market.

Even so, one banker described margins "being squeezed" as banks compete.

Following a trend from the summer, consumers continued to pursue refinancing to reduce the amount they owe on their homes. Bankers in New York said more consumers were requesting refinancing. Helping matters, credit standards tightened for most loan categories, except for residential mortgages.

Small-to-medium sized banks in New York also saw an uptick in commercial mortgages, but not in other loan areas.

That was also the case in Philadelphia where the strongest growth demand came from commercial real estate and home mortgages, especially refinancing.

Other areas of the country, like the Cleveland District, saw similar affects from record-low interest rate.

"Many bankers noted a pickup in the number of applicants who are refinancing into 15-year mortgages," according to the Fed's survey, even though the residential mortgage market itself has slowed from the last report.

Demand for business credit also grew in the District, while consumer loan demand was weak. "Requests are being driven by manufacturing, multi-family housing, and healthcare," the Fed's survey said.

The Richmond District also reported fewer new home loans with several bankers noting continued strength in refinancing.

"However, few lenders were issuing new mortgages, and bottlenecks in the appraisal process were delaying closing," the Fed's survey said.

Another banker reported that many applicants were failing to qualify for loans; while others reported the difficulty in obtaining new construction loans because of tight credit standards.

In Dallas, bankers reported "steady but soft demand for loans," but didn't note any additional refinancing activity in the District.

Lending conditions in Atlanta faired far worse than the rest as weak loan demand from businesses and consumers persisted.

"Banking contacts described lending conditions as weak because of a combination of soft loan demand from qualified borrowers and strict regulatory requirements," according to the Fed's survey.

Additionally, a number of new businesses reported applying for credit to expand their business but were denied or given unacceptable credit terms. "Others were discouraged from applying for credit because of the expectation that they would either be denied or be offered unfavorable terms," according to the survey.

Sharply contrasting bankers in Atlanta, the Kansas City District reported "steady or stronger loan demand," as well as "stable or improving loan quality, and increased deposits."

Demand for both commercial and residential real estate loan strengthened over the three-month period, while credit standard remained largely unchanged.

In Chicago, bankers said loan demand by business continued to be "muted" because of clients' reluctance to take on projects because of economic and political uncertainty.

It was the only District to raise the recent bankruptcy filing of MF Global, saying the fallout was "disruptive for the company's former clients, with missing funds and uncertainty about the status of their futures and options positions limiting their ability to manage risk."