Fannie Mae: Fewer Lenders Easing Credit Standards Despite Competitive Pressure

Fannie Mae, Washington, D.C., said mortgage lenders reported a net negative profit margin outlook for the sixth consecutive quarter, matching the record low reading from Q4 2016.

The Fannie Mae Q1 2018 Mortgage Lender Sentiment Survey said those who expect a lower profit margin continued to point to “competition from other lenders” as the primary reason, which set another new survey high for the fifth consecutive quarter, while “market trend changes” were cited as the next biggest reason for the first time in three quarters.

Additionally, Fannie Mae said more lenders also have a negative view of consumer demand for purchase and refinance mortgages. The net share of lenders who reported growth in purchase demand over the prior three months was negative for the first time in four years, falling to the lowest reading since Q1 2014. Those who had positive demand expectations over the next three months declined to the lowest first-quarter reading since the survey began. Lenders also continued to report a downbeat outlook with regard to refinance demand over the prior three months and next three months.

“Lenders have faced an increasingly difficult market environment, as they report the most sluggish refinance demand expectations in more than a year, the most anemic purchase demand outlook on record for any first quarter, and the worst profit margin outlook in the survey’s history,” said Fannie Mae Chief Economist Doug Duncan. “Despite the pressures to remain competitive and profitable, signs of lender caution appear to be emerging. While more lenders eased lending standards than tightened them, continuing the trend that started more than three years ago, the net share of lenders reporting easing credit standards declined for the first time in five quarters to the lowest level in a year.”

The survey took place between February 7 and February 19.

In a separate report, Fannie Mae said “stimulative fiscal policy” is expected to provide a boost to an already strong 2018 economic growth forecast, despite a projected first quarter slowdown.

The company’s monthly Economic and Strategic Research Group’s March 2018 Economic and Housing Outlook raised its full-year 2018 forecast of real GDP growth by one-tenth to 2.8 percent, as well as its full-year 2019 forecast by two-tenths to 2.5 percent. However, Duncan said downside risks to growth remain, including the potential for aggressive monetary tightening from the Fed and a further escalation of trade tensions following the recent tariffs placed on steel and aluminum imports.

“We’re nearly a quarter of the way through 2018 and, as anticipated, the interplay between fiscal and monetary policy continues to frame the economic landscape,” Duncan said. “While we expect the economy to shift temporarily into a lower gear in the first quarter, the pace of growth should accelerate through the remainder of this year and into the next. Beyond the obvious downside risks, the economy appears poised to build on a foundation of strong consumer spending and a historically healthy labor market following the recent passage of the discretionary spending bill on top of tax reform. On housing, home sales got off to a rough start in 2018, bottle-necked by the persistent challenges of the inventory shortage. Of course, there’s a flipside to the demand-supply imbalance, and strong home price appreciation continues to come as welcome news to existing homeowners.”