Large Lenders Loosen Credit Standards, Small Lenders Tighten Up

Credit standards at large lenders appear to be loosening somewhat, while criteria at small and mid-sized lenders appear to be tightening, according to a new survey from Fannie Mae. Fannie Mae surveyed executives at its lending customers during the first two quarters of this year for its first ever Mortgage Lender Sentiment Survey.

Lenders that reported tightening credit standards most often stated "changing regulatory requirements" as the rationale for their stricter standards.

"Lenders have been trying to find ways to manage their operational costs and meet new regulatory rules," said Doug Duncan, SVP and chief economist at Fannie Mae. "They appear to feel cost constrained, and thus may be applying more conservative standards in their lending practices."

Lending executives are"significantly more likely" to say it is difficult to obtain a mortgage loan in today's market than consumers are, according to a comparison of results from Fannie Mae's Lender Sentiment Survey and Fannie Mae's National Housing Survey, which gauges consumer sentiment.

Overall, lenders expect to maintain their current origination and servicing strategies over the third quarter.

Lending executives maintain a relatively positive outlook on mortgage demand. Executives reported growing single-family mortgage demand in the second quarter and expect continued, albeit, modest growth in the third quarter, Fannie Mae reported.

While they aren't over optimistic about profit margins, more lenders revealed expectations of steady as opposed to declining profit margins in the second quarter than the first.

The overall positive expectations of lenders in the Fannie Mae survey "are broadly in line with other major indicators released recently, including the pickup in home sales in May," said Duncan, adding that the results "support our expectations of a steady but unspectacular rebound for housing during the second half of the year."

Fannie Mae's new Mortgage Lender Sentiment Survey will be released quarterly to reveal "supply-side conditions," which Duncan says will complement the GSE's monthly National Housing Survey of consumers.