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Mortgage Lenders Predict More Easing of Credit Standards in 2016

frozen-creditIt's no secret in the industry that mortgage lenders have eased credit standards, but the real kick is that lenders expect this continue into the upcoming year.

Fannie Mae's fourth quarter 2015 Mortgage Lender Sentiment Survey found that more lenders expect credit standards to ease rather than tighten for GSE-eligible loans and government loans over the next quarter.

The survey found that the easing of credit standards may help solve some of the affordable housing problems that the housing market has been experiencing.

“Several factors point to constrained housing affordability in 2016, particularly for first-time home buyers, including slow single-family supply response and limited inventory of starter homes on the market, strong inflation-adjusted house price appreciation outpacing household income growth, and an upward bias in mortgage rates,"said Doug Duncan, SVP and Chief Economist at Fannie Mae.

fmAccording to the data, 16 percent of lenders expect GSE-eligible loan standards to ease in the fourth quarter, up from 11 percent last quarter. Meanwhile, only 2 percent of lenders believe that standards will tighten, down from 4 percent last quarter. For government loans, 12 percent of lenders expect credit standard to ease, while 3 percent expect them to tighten.

"On net, lenders told us in our fourth-quarter Mortgage Lender Sentiment Survey that they have eased and expect to continue to ease credit standards, which was a consistent trend throughout 2015,” Duncan noted. “Thoughtful easing will help mitigate some of the affordability decline moving into 2016. The use of Fannie Mae’s HomeReady mortgage was cited by some lenders in the survey to explain their expectations for easing credit standards and how they will increase consumers’ access to mortgage credit.”

The survey results showed that lenders reporting higher purchase mortgage demand expectations for the next quarter continues to decrease after reaching a record high in the second quarter. However, this outlook still remains above 2014's data.

For those lenders that are reporting a spike in mortgage demand over the previous three months is also down from the last quarter among all loans, but is above a year ago.

The outlook for both stable mortgage execution and stable mortgage servicing right (MSRs) execution was stable in the fourth quarter, Fannie Mae reports.

In addition, fewer lenders expect their profit margins to increase during the next quarter, with a negative 29 percent expecting profit margins to rise, a new survey low. Fannie Mae said that lenders surveyed blame “government regulatory compliance” for the stall in the profits. The picture is much worse for larger lenders and mortgage banks, with negative 56 percent and negative 53 percent, respectively reporting that negative profit margin outlook.

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