Real Estate Talk: Lenders easing loan standards
Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. Courtesy photo.
By Marty Kovacs, SCVBJ Contributor
Friday, August 18th, 2017

Homebuyers and Realtors may get what they’ve long endorsed — eased credit standards on home loans.

In fact, the share of lenders who report having relaxed mortgage credit rules has ticked up gradually since the fourth quarter of 2016.

That’s according to Fannie Mae’s second-quarter 2017 Mortgage Lender Sentiment Survey.

Additionally, when anticipating the coming months, the share of lenders saying they plan to ease standards — for government-sponsored enterprise eligible, non-GSE eligible, and government loans — reached or surpassed survey highs.

GSEs are financial services corporations created by Congress, most notably the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.

Concerns regarding economic conditions were a top driver for changes in lending standards.

Across the three loan types, the share of lenders nationwide who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period.

The drop in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low.

The results of both surveys mirror the ongoing narrative for housing — tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.

“Expectations to ease credit standards climbed to survey highpoints in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“Lenders cited additional contributing factors such as diminishing compliance concerns,” he said. “And easing credit standards might also be due in part to increased pressure to compete for declining mortgage volume.”

For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook, he said. Plus, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.

Yet mortgage lenders remained optimistic — 78 percent said that home prices over the next 12 months would increase, also a survey-high. Only 3 percent thought home prices would drop in the coming year.

In short, prices in many cities — even here in the Santa Clarita Valley, with a median home price of $584,600 up 4.4 percent from July 2016 — are at risk of rising beyond what may be sustainable and affordable.

Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the 9,600-member Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

About the author

Marty Kovacs

Marty Kovacs, SCVBJ Contributor

Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. Courtesy photo.

Real Estate Talk: Lenders easing loan standards

Homebuyers and Realtors may get what they’ve long endorsed — eased credit standards on home loans.

In fact, the share of lenders who report having relaxed mortgage credit rules has ticked up gradually since the fourth quarter of 2016.

That’s according to Fannie Mae’s second-quarter 2017 Mortgage Lender Sentiment Survey.

Additionally, when anticipating the coming months, the share of lenders saying they plan to ease standards — for government-sponsored enterprise eligible, non-GSE eligible, and government loans — reached or surpassed survey highs.

GSEs are financial services corporations created by Congress, most notably the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.

Concerns regarding economic conditions were a top driver for changes in lending standards.

Across the three loan types, the share of lenders nationwide who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period.

The drop in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low.

The results of both surveys mirror the ongoing narrative for housing — tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.

“Expectations to ease credit standards climbed to survey highpoints in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“Lenders cited additional contributing factors such as diminishing compliance concerns,” he said. “And easing credit standards might also be due in part to increased pressure to compete for declining mortgage volume.”

For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook, he said. Plus, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.

Yet mortgage lenders remained optimistic — 78 percent said that home prices over the next 12 months would increase, also a survey-high. Only 3 percent thought home prices would drop in the coming year.

In short, prices in many cities — even here in the Santa Clarita Valley, with a median home price of $584,600 up 4.4 percent from July 2016 — are at risk of rising beyond what may be sustainable and affordable.

Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the 9,600-member Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.