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Banks’ Residential Mortgage Loans Grow in May

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Real estate loans rise

Real estate loans for all US commercial banks increased 3.7% in the week ending May 6, 2015—compared to a year earlier—according to data released by the Federal Reserve on May 15. In the week, residential mortgages increased 2% YoY (year-over-year). Real estate loans include residential mortgage, home equity, and commercial mortgage loans.

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Residential mortgages show signs of improvement

Residential mortgages’ weekly YoY growth showed some improvement since the end of February, as shown in the above graph. The growth is reflected in a number of housing indicators showing signs of improvement. You can read more about this in Latest Housing Data Give Rise to Builder Optimism.

All of the big banks—including JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), and U.S. Bancorp (USB)—have significant residential real estate portfolios. Growth in the segment will impact these banks as well as the Financial Select Sector SPDR ETF (XLF).

Home equity loans continue to decline

Home equity loans for all US commercial banks declined 3.2% in the week ending May 6, 2015—compared to a year earlier. This segment has been showing negative growth since 2009. The rate of decline is decreasing, as shown in the above graph.

Home equity loans are second mortgages secured by the borrower’s home. The loan is based on the difference between the value of the home and the amount owed on the previous mortgage, called “homeowner’s equity.”

While mortgage loans are used to buy a house, home equity loans are often used to cover major expenses like home repairs, higher education, or major medical expenses. At times, these loans are also used to consolidate various smaller debts into a single loan payment.

Next, you’ll learn about growth in the commercial real estate segment.

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