Lenders reportedly are loosening their standards to qualify for a mortgage. Fannie Mae’s third-quarter 2017 Mortgage Lender Sentiment Survey shows the main reason behind the easing of credit has been the increased competition that lenders are feeling.
Across all loan types—GSE-eligible, non-GSE-eligible, and government—lenders reported easing credit standards over the last three months. Further, the net share of lenders who say they expect to ease credit over the next three months reached a survey high of 18 percent.
“Lenders further eased home mortgage credit standards during the third quarter, continuing a trend that started in late 2016,” says Doug Duncan, senior vice president and chief economist. “In particular, both the net share of lenders reporting easing on GSE-eligible loans for the prior three months and the share expecting to ease standards on those loans over the next three months increased to survey highs. Lenders’ comments suggest that competitive pressure and more favorable guidelines for GSE loans have helped to bring about more easing of underwriting standards for those loans. We believe that GSE attempts to relieve repurchase concerns and expand credit for creditworthy borrowers have contributed to the easing trend.”
Loan demand has been down in recent months, as fewer homeowners refinance their mortgages. As such, lenders are reporting negative net profit margins for four consecutive quarters.
“The share of lenders citing competition from other lenders as the key reason for a negative profit market outlook rose to a new survey high,” Duncan says.