Why are Mortgage Lenders Loosening Up Credit Standards?


Photo credit: GotCredit



Fannie Mae just released the Q2 2017 Mortgage Lender Sentiment Survey and a key finding is that an increasing amount of mortgage lenders are loosening their credit standards and plan to continue doing so throughout the year. When forecasting for the next three months, the net share of lenders who are planning on easing credit standards on non-GSE, GSE and government loans has reached or exceeded the survey highs this quarter.

“Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period,” Fannie Mae reported. “The drop-in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low. The results of both surveys mirror the ongoing narrative for housing: Tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.”

Doug Duncan, SVP and Chief Economist at Fannie Mae says this is more of a competitive move on the part of lenders.

“Expectations to ease credit standards climbed to survey high points in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” Duncan said. “Easing credit standards might also be due, in part, to increased pressure to compete for declining mortgage volume. For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”

Duncan said that with increased GSE support, less compliance concerns, and more clarity on underwriting tools and warranties, lenders have more leeway to loosen up on credit standards.

Can relaxing mortgage standards ameliorate what’s happening in the market: tight inventory and declining desire to own a home?

The Mortgage Lender Sentiment Survey is conducted on a quarterly basis. See the complete results of the Q2 survey here.


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