EFTA01385947

27 March 2015 US Fixed Income Weekly Figure 4: Weak household formation, until recently 4,000 3,000 2,000 1,000 0 xer -1.000 a- -2.000 -3,000 9 `1 1 1?- `r2 lei ri sg7i1 l$Utga PII 2$ En? n oi 3 2rAgg 2) ,AAga> ilrgi c-3Ag3. ->agi3 .ReS San US Como &es Oloomboro Mow LP [Figure 5: Cumulatively tighter bank mortgage tending standards 80 eo 40 20 0 20 Net % tightening mtg lending - . . . . - . . . - . . . - . . . - . . . . - IR 8i `O"; Si 4§r. ,2 e e t-, Lo It 241 < 4,, mo o u. Cumulattve net % tightening 600 500 40O 300 200 100 0 `1") ,S.-- /a ,83 41.1881:7,e2 t " •3 4 •1333cl uT 422 Now an a ove mandate/a for Si loons to 1007 and Farm loans env Source. Fides, Reidna. dyad* Bolt of surveyed banks tightening but not the precise magnitude (Figure 5). There's also the Qualified Mortgage and Ability to Repay standards introduced last year by the Consumer Financial Protection Bureau. Special questions in the Fed's loan officer survey last July showed that the QM and ATR rules had put a drag on all types of lending at all types of banks. And a review of bank lending released by the OCC in December showed that mortgage lending was the only area last year where more banks tightened than eased. And among banks that tightened in the OCC survey, the main reason was regulatory. Concern about put-backs from Fannie Mae and Freddie Mac and litigation from the FHA under the False Claims act has led banks to limit lending even to agency borrowers. Although the market seems to be clearing out the lingering housing supply and the economy and the labor market look likely to repair demand, the availability of credit could prove to be the lasting constraint. Today's lending standards reflect limits designed to keep the last decade's boom and bust from happening again. Borrowers today without the ability to repay will not get a loan. But it looks like some borrowers with the ability to repay—but with low FICO scores or with needs that keep them outside the agency or prime jumbo markets—will also not get a loan. The market is reducing risk today to avoid risk tomorrow. But it also is likely reducing housing growth today to avoid a downturn tomorrow. Who should make that tradeoff and how is an open question. Page 34 Deutsche Bank Securities Inc, CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0087415 CONFIDENTIAL SDNY_GM_00233599 EFTA01385947