Lender Sentiment Leans Toward Purchase Mortgages

Mortgage lenders reported demand growth for GSE eligible purchase mortgages over the past three months rebounded significantly in the second quarter this year.

Fannie Mae’s second quarter 2016 Mortgage Lender Sentiment Survey found that lenders reported a 70 percent on net increase in purchase mortgage demand in the second quarter, compared with 20 percent in the first quarter and 71 percent a year ago.

According to the report, which polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market, lenders expect purchase mortgage demand to remain near levels observed last year for the next three months. Lenders said that demand will fall slightly for GSE eligible and non-GSE eligible mortgages to 60 percent and 43 percent, respectively, but ticking up to 58 percent for government loans.

In terms of refinancing, lenders reported a significant increase for demand across all loan types from the first quarter to the second quarter, but expectations for refinance mortgage demand for the next three months decreased dramatically since last quarter.

“Key survey sentiment indicators suggest that lenders remain cautiously optimistic in their market outlook,” said Doug Duncan, SVP and Chief Economist at Fannie Mae. “The outlook for purchase demand growth over the next three months returned to levels similar to last year, while the outlook for refinance demand and profit margin improved moderately versus last year’s levels."

Although lenders surveyed by Fannie Mae reported a moderate net easing of credit standards across all loan types over the prior three months, they do not expect to ease credit standards over the next three months. In fact, over 90 percent of lenders expect to keep their credit standards the same. Only 4 percent of lenders said that they expect to further ease credit standards over the next three months.

Duncan said. "the trend toward easing of credit standards appears to be tapering off, as the vast majority of lenders, around 90 percent, reported plans to keep their credit standards about the same. The survey was conducted before the recent May jobs report, and the weaker reported job gains might potentially temper this optimism.”