Mortgagors are now relaxing on their credit standards per the latest Fannie Mae Mortgage Lender Sentiment Surveyreport. The number of lenders who said they eased on qualifications are increasing and on a steady trend upwards since the last quarter of 2016.
The report
Per the recent third quarter lender sentiment survey for the year, low mortgage demand and a negative profit margin outlook are to blame for why most lenders loosened instead of tightening credit standards.
And this is not only for a single segment of the loan market. The net share of lenders who reported easing standards in the last three months has reached record high since the survey’s inception in 2014 for all loan types GSE Eligible, Non-GSE Eligible, and Government. The numbers also climbed every quarter since the fourth quarter of 2016.
Fannie Mae’s senior vice president and chief economist Doug Duncan believes that “the GSEs’ attempts to relieve repurchase concerns and expand credit for creditworthy borrowers have contributed to the easing trend.”
Aside from this, the following are among the findings of the survey:
- We can expect further easing of credit in the future as similar expectations among lenders for all loan types showed an affirmative increase on a year-over-year basis.
- The net profit margin outlook of lenders is still negative for the fourth consecutive quarter now.
- On purchase mortgage demand:
- The number of lenders who reported increase in purchase mortgage demand for the quarter has fallen for all loan types – the lowest record for any third quarter over the past two years.
- However, lenders still believe demand would increase in the future, with numbers recording on the steady.
- On refinance mortgage demand:
- More lenders have reported a decrease in refinance demand. This phenomenon however is not new and has been happening since the beginning of the year.
- The report on refi demand however, greatly varies from last year’s record when demand for the same quarter reached survey-high.
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- On profit margin:
- The profit margin outlook among lenders remained negative for four consecutive quarters and is significantly lower on a year-over-year comparison.
- The perceived impact of “government regulatory compliance” has remained low.
- On mortgage execution outlook:
- On net, lenders continue reporting expectations to grow GSE (Fannie Maeand Freddie Mac) and Ginnie Mae shares over the next 12 months and reduce portfolio retention and whole loan sales shares.
An opportunity
Lenders easing credit standards means greater permeability for homebuyers who previously failed to get a mortgage due to tighter qualifications. This could be the opportunity they need to finally start their mortgage acquisition process and get approved for a home loan.
With rates still hovering at historically low levels, relaxed qualifying standards may encourage doubting home buyers to finally make a move towards homeownership.
The survey
The Mortgage Lender Sentiment Survey is an online survey conducted on a quarterly basis. It garners information from and among senior executives in the mortgage industry and is used to track lenders’ current impressions of the industry and their insights into the future of mortgage.
The survey debuted in March 2014.
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