Lenders continued to face headwinds in the third quarter as consumer loan demand weakened slightly in some parts of the country while others saw a small boost, according to a Federal Reserve Board report released Wednesday.

"Financial conditions were little changed on balance from the prior reporting period," the Fed's quarterly economic survey known as the Beige Book said. "Overall loan growth remained modest in most districts."

Bankers across the 12 Fed districts reported that mortgage lending by consumers was mixed, with several noting a decline in home loans because of higher mortgage rates and lower refinancing activity.

In New York, bankers reported "softer" loan demand from consumers, especially for residential mortgages and home loan refinancing. Some contacts also expressed "concern about potential disruptive effects of a prolonged federal government shutdown."

Bankers in the Philadelphia district expressed a similar sentiment, even though most financial firms continue to report "modest increases" in overall lending.

"Most bankers remained optimistic, although they expressed uncertainty on behalf of their businesses customers and for themselves over the implications of both the Affordable Care Act and a prolonged government shutdown," according to the Fed's survey.

Other districts, including Richmond and Dallas, also noted that mortgage originations continued to rise.

In the Richmond district, a lender from West Virginia noted that new residential mortgage lending increased with more consumers taking long-term fixed-rate mortgages over one- to five-year adjustable-rate mortgages.

Still, another North Carolina lender reported that while demand was stable, pricing — especially for jumbo loans — was "very competitive," saying that "some lenders were willing to sacrifice a good bit of margin to get those loans." Another banker in the district described the environment as "pretty brutal."

Financial institutions in the Dallas district, which reported loan demand was "flat to up modestly," also noted that loan pricing remained "extremely competitive with big banks undercutting community banks, especially in Austin," according to the Fed's survey.

Still, there were pockets of improvement in the Kansas City and San Francisco districts where financial institutions said loan demand increased.

Contacts in the Cleveland and Atlanta districts, meanwhile, warned that the low-interest rate environment was continuing to hurt their revenues.

Bankers in Atlanta "voiced concern over interest rate risk as they noticed that their competitors were more willing to extend credit and in some cases were aggressively seeking qualified borrowers," according to the Fed's survey.

Some contacts in the Southern district also noted that "banks seemed to be luring loan business mostly away from each other, rather than creating new opportunities."

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