Lenders Say Mortgage Credit Standards Are Easing

Mortgage lending standards continued to ease across all types of loans in the third quarter, according to Fannie Mae’s most recent Mortgage Lender Sentiment Survey.

The survey, released Thursday, found that a full 20 percent more senior-level lenders in Q3 reported an easing in credit standards for GSE-eligible properties compared to Q2, while 18 percent said credit standards had eased and non-GSE eligible loans.

This supports Fannie’s additional findings that more lenders expect more institutions to ease credit requirements for all types of loans as the year rounds out. This is the first time in seven quarters that Fannie could report such a thing.

“This is a significant result in light of public discourse on credit availability and standards,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Duncan said the results of Fannie’s Q3 survey reflect “multiple factors at play” in the mortgage sector. For one thing, lenders may be getting more comfortable with the GSEs’ updated guidelines, which are intended to provide greater certainty regarding representations and warranties, he said.

For another thing, lenders may be getting more familiar with the regulatory and compliance environment and may be removing credit overlays. Overall, he said that the combination of low mortgage rates and a strengthening labor market seems to be what’s putting lenders’ minds at more ease, and that the sustained easing of standards will “continue to support the housing market expansion.”

Bolstering Duncan’s enthusiasm is the still-good consumer demand for mortgage products, even if consumers in general do not share lenders’ optimism about what will happen with housing prices. While 60 percent of lenders expect home prices to go up in the near future, 47 percent of consumers felt the same way, according to the survey.

Still, while the share of lenders reporting increased purchase mortgage demand over fell slightly between Q2 and Q3, overall demand is till higher than it was this time last year. The drop over the summer was attributed mainly to the seasonal lull in homebuying.

More optimistic is that more institutions expect a more stable mortgage outlook through the next 12 moths, as more loan originations should get sold to the GSEs and Ginnie Mae and fewer mortgage servicing rights get sold to a third party.