Mortgage Credit Standards are Easing, Say Lenders

Fannie Mae’s third quarter 2015 Mortgage Lender Sentiment Survey showed a notable change for the first time in seven quarters.

Washington, D.C.—Fannie Mae’s third quarter 2015 Mortgage Lender Sentiment Survey revealed that more lenders report alleviating standards across all loan types.

Conducted in August 2015, the survey asked senior mortgage executives whether their lending organization’s credit standards have eased, tightened, or remained unchanged for GSE eligible, non-GSE eligible and government loans during the past three months. The gap between lenders reporting easing rather than tightening over the previous three months increased to 20 percentage points and 18 percentage points for GSE eligible and non-GSE eligible loans, respectively—attaining new survey highs of “net easing.” Additionally, the share of lenders who expect their organizations to lighten credit standards over the next three months increased this quarter for both GSE eligible and non-GSE eligible loans.

“For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards in both the GSE eligible and non-GSE eligible loan categories. This is a significant result in light of public discourse on credit availability and standards,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Our survey responses appear to reflect multiple factors at play. Lenders may be becoming more comfortable with the GSEs’ updated guidelines intended to provide them greater certainty regarding representations and warranties. Lenders also may be getting more familiar with the regulatory and compliance environment. Finally, lenders may be removing credit overlays. Overall, we expect that lenders’ tendency toward easing credit standards, together with relatively low mortgage rates and a strengthening labor market, will continue to support the housing market expansion.”

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Mortgage lender sentiment survey highlights include:

Differences in Economic and Housing Sentiment between Senior Mortgage Executives Surveyed in the Mortgage Lender Sentiment Survey and General Consumers Surveyed in the National Housing Survey™

  • Senior mortgage executives continue to be more optimistic about the economy than general consumers.
  • Senior mortgage executives remain more optimistic than general consumers about future home prices.
  • Senior mortgage executives continue to be less optimistic than general consumers about the ease of getting a mortgage today.

Decreased Consumer Purchase Mortgage Demand Reported over the Prior Three Months and Next Three Months

  • The share of lenders reporting increased purchase mortgage demand over the previous three months fell slightly this quarter (Q3 2015) from last quarter (Q2 2015), but overall remains at a high level compared with the 2014 readings.
  • For purchase mortgage demand over the next three months, the share of lenders expecting demand to go up fell this quarter from last quarter, likely reflecting seasonal influences, but remains higher than the same period last year (Q3 2014).

Continued Easing of Credit Standards Reported

  • Lenders continue to report easing credit standards over the prior three months across all loan types. This quarter, the percentage difference between lenders reporting easing, relative to those reporting tightening (“net easing”), has jumped to 20 percentage points and 18 percentage points for GSE eligible and non-GSE eligible loans, respectively, reaching new survey highs.
  • The share of lenders reporting that they expect to ease their credit standards over the next three months ticked up slightly this quarter for GSE eligible and non-GSE eligible loans.

Stable Mortgage Execution Outlook

  • More institutions reported expectations to increase rather than decrease the shares of loan originations sold to the GSEs and Ginnie Mae over the next 12 months.

Stable Mortgage Servicing Rights (MSR) Execution Outlook

  • More lenders reported expectations to decrease rather than increase the share of their MSRs sold to a third party. In addition, more lenders reported expectations to increase rather than decrease the share of their MSRs retained and serviced by a subservicer.

Fewer Lenders Expecting an Increase in Profit Margin over the Next Three Months

  • The share of lenders reporting an increased profit margin outlook over the next three months has fallen significantly this quarter from last quarter, but reached a similar level seen in the same quarter last year (Q3 2014).

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 stance across varied measurements of the mortgage market. The Fannie Mae third quarter 2015 Mortgage Lender Sentiment Survey was done between August 5, 2015 and August 17, 2015 by Penn Schoen Berland in coordination with Fannie Mae.