Fewer mortgage lenders are reporting tighter credit, but weak consumer demand is increasingly cited as driving lenders’ decreased profit margin outlook, according to results from Fannie Mae’s fourth quarter 2014 Mortgage Lender Sentiment Survey.

Conducted in November 2014, the survey shows that for GSE-eligible loans, the share of lenders who say they have tightened their credit standards during the prior three months has gradually trended down this year, decreasing to 13% in the fourth quarter compared to 28% in the first quarter.

For non-GSE-eligible loans, more lenders reported easing of credit standards than tightening for the second consecutive quarter. Despite this, consumer demand reported for single-family purchase mortgages over the prior three months declined significantly from Q3 to Q4, and the share of lenders expecting demand to go down during the next three months has climbed, supporting expectations that the housing market will continue to grind its way upward next year.

“Overall, lenders’ growing concerns with purchase mortgage demand is broadly in line with major industry indicators and supports our views of a modest housing expansion going into 2015,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “While government regulatory compliance remains the top driver of declining profit margin expectations across all lenders, more lenders, and in particular larger lenders, are increasingly concerned with consumer demand risk.”

“The increased share of lenders who reported easing of credit standards could be associated with Fannie Mae and Freddie Mac releasing updated guidelines to their representation and warranty frameworks, intended to provide lenders with greater certainty and clarity around potential repurchase risk. These efforts indicate industry endeavors to boost housing activities by making mortgages available to more borrowers,” said Duncan. “We believe that some combination of easing of credit standards, relatively low mortgage rates, and ongoing labor market improvements will help the housing market to grow steadily, albeit modestly, in 2015.”

Here are some highlights from the survey:

  • Compared to general consumers, senior mortgage executives, and especially those at larger lenders, continue to be more optimistic about the overall economy and more pessimistic about consumers’ ability to get a mortgage today.
  • Downward consumer purchase mortgage demand reported over the prior three months
  • Consumer demand reported for single-family purchase mortgages over the prior three months declined significantly from Q3 to Q4, in particular among larger lenders.

Other findings:

Negative consumer purchase mortgage demand outlook for the next three months

  • Lenders’ purchase mortgage demand outlook has gradually trended down each quarter throughout the year, with fewer lenders each quarter reporting increased mortgage demand expectations over the next three months, although there might be seasonal influences.

Gradual credit standards easing

  • Credit tightening observed early this year has gradually trended down each quarter throughout the year, with fewer lenders each quarter reporting credit tightening over the prior three months. Larger lenders are more likely to report credit easing than tightening, across all loan types, throughout the year.

Stable mortgage execution outlook

  • Throughout the year, most lenders reported that they expect to maintain their mortgage execution strategies for the next three months.

Stable mortgage servicing rights execution outlook

  • Throughout the year, most lenders reported that they expect to maintain their MSR  execution strategies over the next three months.

Stable profit margin expectations for the next three months

  • Lenders’ profit margin outlook has remained relatively stable after the first-quarter drop. Among larger lenders, the importance of government regulatory compliance in driving their decreased profit margin outlook has gradually declined and the importance of consumer demand has gradually increased.