Lenders Forecast Modest Housing Growth in 2015

Despite fewer lenders reporting tighter credit requirements, weak consumer demand continues to impact lenders’ decreased profit margin outlook, according to results from the most recent Fannie Mae survey on mortgage lender sentiment. 

Conducted in November, the 2014 Mortgage Lender Sentiment Survey indicates that lenders’ growing concerns with purchase mortgage demand is broadly in line with industry indicators while also supporting views of a modest housing expansion heading 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,” Duncan said in a written statement.

The Mortgage Lender Sentiment Survey polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. 

Compared to general consumers, senior mortgage executives—especially those at larger lending companies—continue to be more optimistic about the overall economy and more pessimistic about consumers’ ability to get a mortgage today.

For GSE-eligible loans, the share of lenders who say they have tightened their credit standards in the past three months has gradually trended down this year, falling to 13% in the fourth quarter compared to 28% in the first quarter. In the second quarter this share fell to 20%, then 18% by the third quarter.

Meanwhile, for non-GSE-eligible loans, more lenders reported easing than tightening of credit standards for the second consecutive quarter— 18% vs. 9%. Looking ahead, 13% of lenders report they will ease credit standards over the next three months, compared to 4% who said they expect to tighten them.

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 representations and warranties frameworks, intended to provide lenders with greater certainty and clarity around potential repurchase risk, said Duncan. 

“These efforts indicate endeavors to boost housing activities by making mortgages available to more borrowers,” he said.

However, despite this, the share of lenders expecting increased purchase mortgage demand over the next three months has trended downward for both GSE- and non-GSE-eligible loans. 

In the fourth quarter, more lenders reported downward mortgage demand expectations than upward expectations for GSE-eligible loans over the next three months—22% and 17%, respectively. 

On the flip-side, lenders’ purchase mortgage demand expectations for non-GSE eligible loans have gradually trended down throughout the year, with the share of lenders who are expecting demand to fall over the next three months climbing significantly from Q3 to Q4—from 12% to 24%.

The share of lenders expecting demand to go down during the next three months supports expectations that the housing market will continue to grind its way up next year.

“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,” Duncan said. 

The fourth quarter 2014 Sentiment Survey was conducted between November 5-24 by global research-based consultancy Penn Shoen Berland in coordination with Fannie Mae. 

Written by Jason Oliva

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