Large lenders’ expectations that underwriting standards will ease over the next three months coincide with overall lenders’ expected pullback in the demand for single-family purchase mortgages, according to the results from Fannie Mae’s third-quarter Mortgage Lender Sentiment Survey.
Lenders report positive expectations, project modest growth
The share of lenders who expect purchase mortgage demand to go up over the next three months decreased significantly – between 26 to 32 percentage points depending on loan type – with the largest decline of 33 percentage points on GSE-eligible loans. Among those surveyed, larger lenders continue to be more likely than their smaller counterparts to stay they expect to ease their credit standards during the next three months, in particular for non-GSE-eligible and government loans, perhaps indicating an effort to boost purchase mortgage activity before the year comes to a close.
“Lenders’ diminished purchase mortgage demand outlook is broadly in line with the softened consumer housing sentiment seen in the August National Housing Survey results,” Fannie Mae Chief Economist Doug Duncan said. “Historically, as lenders face a more competitive market for loan volume, it’s not uncommon to see some loosening in the lending standards; however, this time, the easing will likely be around the edges. Larger lenders are expecting to tap into the non-GSE-eligible and government loan market to maintain or grow their market share and offset their anticipated slowing mortgage demand as the peak spring/summer selling seasons are coming to an end.”
Highlights from the survey include:
- Compared with general consumers, senior mortgage executives continue to be more optimistic about the overall economy and more pessimistic about consumers’ ability to get a mortgage today.
- Consumer demand reported for single-family purchase mortgages over the prior three months remain little changed from Q2 to Q3 2014.
- The share of lenders expecting demand growth for the next three months declined significantly from Q2 to Q3.
- Most lenders reported no major changes in their credit standards for the prior three months and expected no major changes for the next three months. However, large lenders continue to be more likely than smaller lenders to say their credit standards eased over the prior three months and that they expect standards to ease during the next three months, in particular for non-GSE-eligible and government loans.
- As in Q1 and Q2, most lending institutions surveyed in Q3 2014 reported that they expect to maintain their post-mortgage origination execution strategies for the next three months.
- As in Q1 and Q2, the majority of lenders survey in Q3 2014 reported that they expect to maintain their Mortgage Servicing Rights strategies for the next three months.
- Lenders’ profit margin outlook for the next three months appears to have worsened from Q2 to Q3. The net percentage of larger and mid-sized lenders reporting decreased profit margin expectation increased from Q2 to Q3.
Fannie Mae pools 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 third quarter 2014 Fannie Mae Mortgage Lender Sentiment Survey was conducted between Aug. 6 and Aug. 22.