Survey: Further Easing of Mortgage Credit Standards Ahead

Fannie Mae, Washington, D.C., said mortgage lenders continue to report that they have eased and expect to continue easing their credit standards in the coming year.  

Fannie Mae’s fourth quarter Mortgage Lender Sentiment Survey, conducted in November, show that more lenders reported expectations to ease rather than tighten mortgage credit standards for government-sponsored enterprise-eligible loans and government loans over the next three months, which Fannie Mae Chief Economist Doug Duncan said could help mitigate some of the decline of housing affordability moving into 2016.  

The survey said the share of lenders expecting to ease standards for GSE-eligible loans climbed to 16 percent, while the share expecting to tighten standards dropped to 2 percent. In addition, more lenders reported easing as opposed to tightening of credit standards over the prior three months across all loan types, although the net shares fell somewhat from last quarter’s survey highs.  

“On net, [lenders] have eased and expect to ease credit standards, continuing the trend seen so far this year,” Duncan said. “These current practices and expectations toward easing among lenders compares to a historically relatively tight mortgage credit standard base.”  

Other survey highlights:

–The net share of lenders reporting increased purchase mortgage demand expectations for the next three months has continued to decline throughout the year after reaching survey highs in in the second quarter, likely reflecting seasonal influences, but lenders’ purchase mortgage demand outlook remains higher than 2014.

–The net share of lenders reporting increased mortgage demand over the prior three months is down from the previous quarter across all loan types, but remains higher than the same period last year.

–Lenders continue to report expectations to ease credit standards over the next three months for GSE eligible and government loans, with the net percentage of lenders reporting easing expectations reaching a new survey high.

–More lenders reported easing of credit standards than tightening them over the prior three months across all loan types, continuing a trend seen throughout the year.

–However, the net share of lenders reporting easing of credit standards over the prior three months fell somewhat from last quarter’s survey highs, across all loan types.

–Most institutions reported expectations to maintain their strategy with regard to secondary market originations over the next 12 months. However, more institutions continue to report expectations to increase rather than decrease the shares of loan originations sold to Ginnie Mae, continuing a trend seen in previous quarters.

–Throughout 2015, more lenders continue to report expectations to decrease rather than increase their portfolio retention shares (mainly larger institutions) and whole loan sales to non-GSE correspondents over the next 12 months.

–More lenders reported expectations to decrease rather than increase the share of their mortgage servicing rightgs 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.

–The net share of lenders reporting expectations to increase MSRs sold to a third party grew by 12 percentage points since the third quarter. As would be expected, the net share of lenders reporting increased shares of MSRs retained dropped this quarter.

–This quarter, the net share of lenders expecting an increased profit margin over the next three months has declined to negative 29 percent, hitting a new survey low. One in two of these lenders cite “government regulatory compliance” as a key driver.

–Larger lenders and mortgage banks reported a bigger negative profit margin outlook than the total survey sample, with a net percentage score of negative 56 percent and negative 53 percent, respectively.  

Duncan said several factors point to continued constrained housing affordability in 2016, particularly for first-time home buyers, including slow single-family supply response and limited inventory of starter homes on the market, strong inflation-adjusted house price appreciation outpacing household income growth and an upward bias in mortgage rates.  

“Lenders’ thoughtful easing of credit standards should help mitigate some of this affordability decline,” Duncan said.