Lenders Gloomy about Purchase Demand and Profits

Fannie Mae’s writers use the word “stable” repeatedly torndescribe many of the findings from its fourth quarter 2014 Mortgage LenderrnSentiment Survey, especially where the senior executives completing thernquestionnaire detailed their operational expectations. </p

The Novemberrnsurvey found fewer lenders reporting tightened credit standards. Thirteenrnpercent of respondents said their standards had tightened for GSE eligiblernloans compared to 28 percent in the first quarter of 2014.  More lenders reported their institutions hadrnloosened standards for non-GSE-eligible loans than reported tightening them,rnthe second consecutive quarter this pattern has prevailed.</p

The number ofrnsenior executives reporting that demand for loans for single-family homernpurchases either declined significantly or stayed the same increased measurablyrnfrom the Q3 survey, especially those reporting less demand for non-GSE-eligiblernloans. This view was more predominant among larger lenders.  Very few respondents projected that demand wouldrnincrease in the short term and Fannie Mae said this has been a consistent trendrnwith fewer lenders each quarter expecting an improvement in purchase loanrndemand. </p

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As to the areas of stability.  Lenders responses have remained fairlyrnconsistent throughout the year saying that they expect to maintain current mortgagernexecution strategies and mortgage servicing rights execution over the followingrnthree months.  </p

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Lenders’ profit margin outlook has also remained relativelyrnstable after a first-quarter drop. Among larger lenders, the importance ofrngovernment regulatory compliance in driving their decreased profit marginrnoutlook has gradually declined; weak consumer demand is increasingly cited asrndriving lenders’ decreased profit margin outlook.</p

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“Overall, lenders’ growing concernsrnwith purchase mortgage demand is broadly in line with major industry indicatorsrnand supports our views of a modest housing expansion going into 2015,” saidrnDoug Duncan, senior vice president and chief economist at Fannie Mae. “Whilerngovernment regulatory compliance remains the top driver of declining profitrnmargin expectations across all lenders, more lenders, and in particular largerrnlenders, are increasingly concerned with consumer demand risk.”rn</p

“The increased share of lenders whornreported easing of credit standards could be associated with Fannie Mae andrnFreddie Mac releasing updated guidelines to their representations andrnwarranties frameworks, intended to provide lenders with greater certainty andrnclarity around potential repurchase risk. These efforts indicate industryrnendeavors to boost housing activities by making mortgages available to morernborrowers,” said Duncan. “We believe that some combination of easing of creditrnstandards, relatively low mortgage rates, and ongoing labor market improvementsrnwill help the housing market to grow steadily, albeit modestly, in 2015.”</p

The Fannie Mae survey presentedrnrespondents, primarily its lender partners at the CEO, CFO level with the samernquestions it asks consumers monthly in its National Housing Survey.  Responses to the “right track/wrong track”rnquestion about the economy from the two groups were almost mirror opposites</bwhile the groups generally agreed about what will happen over the next yearrnwith home prices.</p