Money supply remains tight

Last updated on April 21st, 2022 at 07:30 pm

Rising interest rates will slow residential mortgage refinancing during the final six months of the year, according to the latest Wisconsin Bank CEO Economic Conditions Survey conducted in June by the Wisconsin Bankers Association (WBA).

Demand for other benchmark loan categories, including commercial and commercial real estate, is weak and expected to stay flat through the end of the year.

Just 23 percent of the 129 bank leaders who completed the biannual survey say residential loan demand will grow in the last six months of the year, down from 44 percent in January. Strong demand for mortgage refinancing was credited for boosting Wisconsin bank earnings in the first quarter of 2009.

Rising interest rates is the likely reason for the predicted flattening of residential loan demand.  Sixty-six percent of Wisconsin bank CEOs say that long-term interest rates, like those used for fixed mortgage products, will rise in the next six months.  But by historical standards, residential mortgage rates will continue to be low throughout 2009.

“These survey results are not for the faint of heart,” said Kurt Bauer, WBA president and CEO.  “Every measurement in the survey shows that the deep recession and growing unemployment is deteriorating the financial condition of Wisconsin families and businesses.”

Demand for commercial loans – the bread and butter product for most banks – will stay the same for the remainder of 2009, according to 66 percent of respondents. Twenty-one percent said it will drop and just 12 percent say it would grow.  Similarly, 56 percent believe demand for commercial real estate loans will stay the same, 32 percent say demand will drop, 11.5 percent say it would rise.

Reduced cash flow, poor earnings and impaired capital were the top three reasons given by bankers as to why businesses were denied credit during the first six months of 2009. Respondents say that housing/real estate is the most likely sector of the economy to lead a recovery, followed by consumer spending. Commercial real estate and manufacturing will be the slowest sectors to rebound, according to the survey.

Banker pessimism about local and statewide economic conditions has grown since the beginning of 2009. Seventy percent of respondents say that the Wisconsin economy is still weakening.  That is actually an improvement from six months ago when 90 percent said Wisconsin hadn’t yet hit the economic bottom. But the percentage of bankers rating the overall state economy as “poor” increased from 16.7 percent in January to 28.5 percent in June. Sixty-nine percent rate the economy as “fair” and just 2.5 percent say it was “good.” This is the lowest statewide economic rating since the WBA survey began in 2004.

Seventy percent of bank CEOs saw an increase in past due residential mortgage payments, up from 64 percent six months ago; 56.6 percent report increased home foreclosures, up from 50.7 percent; and 70.4 percent said the number of consumer and business bankruptcies grew, up from 59 percent.

Fifty-six percent report seeing increased requests for residential mortgage modification during the last six months, but just 10 percent say the volume has been difficult to manage. Of those customers requesting loan modifications, bankers report a high success rate if the mortgage was originated by the same bank. The modification success rate is mixed for mortgages originated by non-bank lenders, according to bankers. Freddie Mac is by far the most popular of the mortgage modification programs available.

The employment picture improved somewhat from when the last survey was taken. The employment picture improved somewhat from when the last survey was taken. In January, 54 percent of bank CEOs said businesses in the markets they serve would layoff workers. The number dropped to 38 percent in June. Less than 1 percent said employers will be hiring in the next six months.

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