Lender attitudes toward the housing market are positive overall heading into Q3, having recovered from a significant decline in recent quarters, according to Fannie Mae's second quarter 2016 Mortgage Lender Sentiment Survey.

Conducted in May, the survey results show that lenders reporting demand growth for GSE eligible purchase mortgages over the past three months rebounded to 70% on net, compared with 20% in the prior quarter (Q1 2016) and 71% one year ago (Q2 2015). Additionally, lenders' purchase demand expectations for the next three months remain near the levels seen during the same period last year – dipping slightly for GSE eligible and non-GSE eligible mortgages to 60% and 43%, respectively, but ticking up to 58% for government loans.

While lenders also reported a moderate net easing of credit standards across all loan types over the prior three months, expectations to ease standards during the next three months have gradually ticked downward on net since Q4 2015, with most lenders expecting to keep their credit standards unchanged. For GSE eligible loans, only 4% of lenders on net expect to further ease credit standards within the next three months.

"Key survey sentiment indicators suggest that lenders remain cautiously optimistic in their market outlook," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The outlook for purchase demand growth over the next three months returned to levels similar to last year, while the outlook for refinance demand and profit margin improved moderately versus last year's levels. Additionally, the trend toward easing of credit standards appears to be tapering off, as the vast majority of lenders, around 90%, reported plans to keep their credit standards about the same. The survey was conducted before the recent May jobs report, and the weaker reported job gains might potentially temper this optimism."

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS

Purchase Mortgage Demand Over Prior Three Months and Expectations for Next Three Months Near Same Levels Seen One Year Ago

  • Net demand growth for non-GSE eligible purchase mortgages over the prior three months is down slightly year-over-year, largely due to a significant decrease in growth among mid-sized institutions and mortgage banks since Q2 2015, but has rebounded from the prior quarter.
  • Net demand growth expectations for the next three months fell somewhat for non-GSE eligible mortgages but ticked upward for government loans.
  • Refinance Mortgage Demand Expected to Decrease Significantly Over Next Three Months.
  • Lenders reported a significant increase from last quarter (Q1 2016) in net demand growth for refinance mortgages across all loan types over the prior three months.
  • But, expectations for refinance mortgage demand for the next three months decreased dramatically since last quarter (Q1 2016).
  • Moderate Easing of Credit Standards Reported Over Prior Three Months, but Expectations for Next Three Months Continue to Dip
  • Lenders continue to report net easing of credit standards, albeit moderate, across all loan types over the prior three months, with standards for government loans rebounding after a net tightening seen last quarter (Q1 2016).
  • However, net easing expectations for the next three months have gradually ticked downward since Q4 2015 across all loan types, with about 90 percent of lenders reporting plans to keep their credit standards unchanged.
  • Larger institutions, in particular, projected significantly less credit easing over the next three months for non-GSE eligible loans than they expected last quarter (Q1 2016).
  • More Overall Stability in Mortgage Execution Outlook

Lenders are expecting more overall stability in their mortgage execution strategy.

  • The proportion of lenders reporting expectations to keep the share of originations sold to each channel unchanged increased somewhat from last quarter for each channel, except for whole loan sales to non-GSE correspondents.
  • More Lenders Expecting an Increase in Profit Margin over the Next Three Months
  • Lenders reported a net positive profit margin outlook for a second-straight quarter, representing a moderate increase from this time last year (Q2 2015).
  • Larger institutions and mortgage banks both reported significantly higher profit margin expectations compared to this time last year (Q2 2015). In contrast, smaller institutions and credit unions reported moderate year-over-year decreases in net profit margin outlook.
  • Lenders expecting increased profit margins cite rising consumer demand and higher operational efficiency as the key reasons, while those expecting lower profits point primarily to government regulatory compliance.

The Mortgage Lender Sentiment Survey conducted by Fannie Mae polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. The Fannie Mae second quarter 2016 Mortgage Lender Sentiment Survey was conducted between May 4, 2016 and May 16, 2016 by Penn Schoen Berland in coordination with Fannie Mae. For detailed findings from the second quarter 2016 survey, as well as survey questionnaires and other supporting documents, please visit the Fannie Mae Mortgage Lender Sentiment Survey page on fanniemae.com. Also available on the site are special topic analyses, which focus on findings and analyses of important industry topics.