Lenders Gloomy about Purchase Demand and Profits


Fannie Mae’s writers use the word “stable” repeatedly to
describe many of the findings from its fourth quarter 2014 Mortgage Lender
Sentiment Survey, especially where the senior executives completing the
questionnaire detailed their operational expectations.

The November
survey found fewer lenders reporting tightened credit standards. Thirteen
percent of respondents said their standards had tightened for GSE eligible
loans compared to 28 percent in the first quarter of 2014.  More lenders reported their institutions had
loosened standards for non-GSE-eligible loans than reported tightening them,
the second consecutive quarter this pattern has prevailed.

The number of
senior executives reporting that demand for loans for single-family home
purchases either declined significantly or stayed the same increased measurably
from the Q3 survey, especially those reporting less demand for non-GSE-eligible
loans. This view was more predominant among larger lenders.  Very few respondents projected that demand would
increase in the short term and Fannie Mae said this has been a consistent trend
with fewer lenders each quarter expecting an improvement in purchase loan


As to the areas of stability.  Lenders responses have remained fairly
consistent throughout the year saying that they expect to maintain current mortgage
execution strategies and mortgage servicing rights execution over the following
three months. 



Lenders’ profit margin outlook has also remained relatively
stable after a first-quarter drop. Among larger lenders, the importance of
government regulatory compliance in driving their decreased profit margin
outlook has gradually declined; weak consumer demand is increasingly cited as
driving lenders’ decreased profit margin outlook.



“Overall, lenders’ growing concerns
with purchase mortgage demand is broadly in line with major industry indicators
and supports our views of a modest housing expansion going into 2015,” said
Doug Duncan, senior vice president and chief economist at Fannie Mae. “While
government regulatory compliance remains the top driver of declining profit
margin expectations across all lenders, more lenders, and in particular larger
lenders, are increasingly concerned with consumer demand risk.”

“The increased share of lenders who
reported easing of credit standards could be associated with Fannie Mae and
Freddie Mac releasing updated guidelines to their representations and
warranties frameworks, intended to provide lenders with greater certainty and
clarity around potential repurchase risk. These efforts indicate industry
endeavors to boost housing activities by making mortgages available to more
borrowers,” said Duncan. “We believe that some combination of easing of credit
standards, relatively low mortgage rates, and ongoing labor market improvements
will help the housing market to grow steadily, albeit modestly, in 2015.”

The Fannie Mae survey presented
respondents, primarily its lender partners at the CEO, CFO level with the same
questions it asks consumers monthly in its National Housing Survey.  Responses to the “right track/wrong track”
question about the economy from the two groups were almost mirror opposites
while the groups generally agreed about what will happen over the next year
with home prices.



Most striking was the divergence of
opinion between the two over the ease of getting a mortgage.  The lenders’ outlook was as pessimistic as
their view of the overall economy was optimistic.   


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