More mortgage lenders say they have eased credit standards recently and expect further easing in the coming months, according to Fannie Mae’s second quarter 2017 Mortgage Lender Sentiment Survey®.
The share of lenders reporting they have eased mortgage credit standards over the prior three months has ticked up gradually since the fourth quarter of 2016. Additionally, when anticipating the next three months, the net share of lenders saying they plan to ease credit standards for GSE eligible, non-GSE eligible, and government loans reached or surpassed survey highs this quarter.
Concerns regarding economic conditions were a top driver for changes in lending standards. Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for a second-quarter period. The drop in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey®, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low. The results of both surveys mirror the ongoing narrative for housing: Tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.
“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,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “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. For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”
Among other findings:
- The net share of lenders reporting demand growth over the prior three months has fallen for all loan types when compared with Q2 2016 and Q2 2015, reaching the lowest reading for any second quarter over past two years.
- However, the net share of lenders expecting increased demand over the next three months remains relatively stable for the same quarter year over year.
- The net share of lenders reporting rising demand over the prior three months fell significantly to a three-year low, across all loan types.
- The net share of lenders reporting demand growth expectations for the next three months has changed little from last quarter (Q1 2017).
- The net share of lenders reporting easing of credit standards over the prior three months has gradually ticked up since Q4 2016.
- Net easing expectations for the next three months have also gradually climbed. In particular, the net easing share for GSE eligible loans and government loans for the next three months reached new survey highs this quarter (though modest in absolute percentage) and that for non-GSE eligible loans tied a survey high reached in Q2 2014.
