Many mortgage lenders have begun easing credit standards in recent months because of concerns about slowing demand and increased competition, a recent Fannie Mae survey found.
The net share of lenders reporting they have eased mortgage credit standards over the prior three months has risen gradually since the fourth quarter of 2016, according to Fannie Mae’s second quarter 2017 Mortgage Lender Sentiment Survey. Lenders also indicated in the survey they plan to further ease credit standards over the next three months.
“Expectations to ease credit standards climbed to survey high points in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a news release. “Lenders cited additional contributing factors such as diminishing compliance concerns and more support from the GSEs, including clarification on representations and warranties and tools that provide greater certainty during the loan underwriting process.”
“Easing credit standards might also be due in part to increased pressure to compete for declining mortgage volume.”
Doug Duncan, chief economist at Fannie Mae
The lender survey polls senior executive of its lending institution customers on a a quarterly basis to assess their views of the mortgage market. The findings mirror the Fannie Mae National Housing Survey, which found the net share of consumers reporting it is a good time to buy a home falling to a record low. Both surveys indicate tight inventory has pushed up home prices, and is weighing on affordability and constraining sales, according to the release.
Other findings of the mortgage lender survey include:
• The net share of lenders reporting purchase mortgage demand growth over the prior three months has fallen for all loan types when compared with the second quarters of 2016 and 2015.
• The net share of lenders reporting rising demand for mortgage refinancing fell significantly to a three-year low over the past three months.
• The net share of lenders reporting a negative profit margin outlook has declined since reaching the survey’s worst reading in the fourth quarter of 2016. Still, more lenders reported a negative outlook than a positive one.
• Mid-sized institutions are most likely to expect a net decrease in profit margin, while larger institutions are more likely to expect an net increase in profit margin.
• Concern about competition from other lenders was cited as a key reason for lenders’ decreased profit margin outlook.
• The perceived impact of government regulatory compliance has remained low the past three quarters compared with most of the prior two years’ readings.
More details about the Fannie Mae survey can be found by clicking here.