Lenders Expect Easing in both Mortgage Demand, Credit Standards


In its latest Mortgage
Lender Sentiment Survey Fannie Mae detected an interesting switch in attitudes
and opinions in two areas.  The
third-quarter survey, the third since Fannie Mae originated the series last
March, found that large lenders expect to see their underwriting standards ease
over the next three months.  Perhaps not
coincidentally, the share of lenders of lenders, regardless of the size of the
institutions they represent, who expect the demand for purchase mortgages to go
up over the next three months dropped by 26 to 33 percentage points depending
on the mortgage type. 

The largest decline in
expectations was for GSE-eligible loans where the percentage of respondents expecting
borrower demand to increase fell from 54 percent in the second quarter to 21
percent.  The other categories fared only
marginally better.  Expectations of
increasing demand for non-GSE eligible loans were reported by 53 percent of
participants in the second quarter but only 27 percent in the third.  Only 16 percent looked for increased demand
in government loans compared to 42 percent the previous quarter.

Two hundred fourteen executive
officers representing 196 lenders participated in the 10 to 15 minute on-line
survey.  Fifty-seven of the participating institutions
were mortgage banks and 128 were depository institutions.  Fifty of the entities were classified as larger
institutions with 2012 total industry loan origination volume in the top 15
percent or above $1.14 billion.  There
were 55 mid-sized institutions that participated and those had an origination
volume which put them in the 16 percent to 35 percent range or $325 million to
$1.14 billion.  The 91 remaining
respondents classified as smaller institutions fell below those benchmarks. 

Overall, most lenders
reported no major changes
in their underwriting credit standards for the prior three months and expected
no major changes
for the next three months. However,
the credit tightening for GSE eligible loans noted in the first quarter seems
to have gradually trended down in quarters two and three.  Larger 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.  Fannie Mae said perhaps this indicates an effort to boost purchase mortgage
before the year comes to a close.

diminished purchase mortgage demand outlook is broadly in line with the softened
consumer housing sentiment seen in the August National Housing Survey results
released last week,” said Doug Duncan, senior vice president and chief
economist at Fannie Mae. “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.” These latest third quarter results are largely consistent with Fannie
Mae’s study
released last month, titled “Impact of QM,” that
shows larger lenders are more likely than smaller lenders to pursue non-QM
loans. “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,” said Duncan.

Interestingly senior
mortgage executives continue to be much more pessimistic than the general
public when it comes to the ease of getting a mortgage.  Fannie Mae compared the lenders’ responses to
how easy it would be to get a mortgage to answers to the same question gathered
from the most recent National Housing Survey conducted with consumer homeowners
and renters.  Only 15 percent of the
senior executives (down from 19 percent in the second quarter) thought it was
easy for consumers to get a mortgage today. 
Among those consumers themselves 48 percent thought that was true.



Those executives
however have an optimistic streak.  When
confronted with a question about the direction of the economy, 51 percent of
the lenders said it was on the right track compared to 35 percent of National
Housing Survey respondents.

The lenders were slightly
more bullish about home prices as well. 
Forty-eight percent expect those prices to rise over the next 12 months,
only 2 percent expect a decline.  Among
consumers price increases were expected by 42 percent and declines by 9
percent.  The average increase among
those expecting price hikes was 1.9 percent for the executives (down from 3.2
percent in the first quarter) and a slightly higher 2.1 percent for consumers.

The Mortgage Lender Sentiment Survey
which was conducted between August 6 and 26 also found that the majority of
lenders surveyed reported, as they had in the two previous surveys, that they
expect to maintain both their Mortgage Servicing Rights and their post mortgage
origination execution strategies for the next three months.  However their profit margin outlook appears
to have worsened.  The net percentage of larger and mid-sized lenders reporting
decreased profit margin expectations increased from Q2 to Q3.

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