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A Credit Shuffle Among Mortgage Lenders

frozen-creditFewer mortgage lenders are reporting that they are loosening credit standards, and many do not expect credit to become more accessible over the next few months.

The share of mortgage lenders reporting easing credit standards over the prior three months fell for the second straight quarter, according to Fannie Mae’s first quarter 2016 Mortgage Lender Sentiment Survey conducted in February.

In addition, the survey also found that the share of lenders that expect credit standards to ease over the next three months decreased from last quarter for all mortgage types.

Fannie Mae reported that 13 percent of lenders surveyed noted that credit standards eased over the last three months in the first quarter of 2016, down from 17 percent in the previous quarter. Over the next three months, 13 percent of lenders said credit standards will ease, down from 18 percent last quarter. Five percent of lenders said that credit tightened over the last three months, up from 4 percent last quarter. Only 7 percent of lenders said credit will tighten over the next three months, the same as last quarter.

Lenders who say their credit standards have eased or tightened over the past threee monthsThe survey also showed that more lenders reported that they expect to increase the percentage of their mortgage servicing rights (MSRs) sold to a third-party in the first quarter of 2016. More mid-sized institutions expect to increase their share of MSRs sold to a third-party compared to the first quarter of 2015.

Doug Duncan, SVP and Chief Economist at Fannie Mae, explained, "Lender expectations for easing over the next three months have also moderated. Many lenders also indicate a likely increase in the sales of mortgage servicing rights, possibly to compensate for these countervailing pressures on profits and to take advantage of current favorable pricing in the market.”

According to Fannie Mae, the net share of lenders reporting purchase mortgage demand for all loan types decreased significantly from a year ago but lenders expect an uptick in refinance demand.

The net share of lenders reporting increased purchase mortgage demand for the prior three months declined significantly across all loan types from one year ago but similar to level reported last year.

Lenders who say if refinance demand had gone up or down over the past threee monthsOver the past three months, 39 percent of lenders reported a decline in refinance demand, compared to 42 percent last quarter. A total of 26 percent of lenders said that refinance demand increased over the last few months, up from 19 percent last quarter.

For the next three months, 11 percent of lenders indicated that they expect refinance demand to decrease, down from 62 percent last quarters. Meanwhile, 50 percent expect to see an uptick in refinancing compared to 6 percent the previous quarter.

"This quarter’s Mortgage Lender Sentiment Survey results reflect recent market volatility. Lenders anticipate a pickup in refinance demand in light of the decline in interest rates this year, but report a slowdown in purchase demand perhaps because of a seasonal component,” Duncan stated.

Click here to view the full report.

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