Faced With Falling Volume, Large Lenders Expect To Ease Credit Standards

Large lenders are likely to ease their underwriting standards over the next three months, particularly for non-GSE-eligible and government loans, while smaller lenders will be less inclined to do so, Fannie Mae's third-quarter Mortgage Lender Sentiment Survey reveals.

The reason large lenders will be more inclined to relax standards, according to the report, is the fact that mortgage origination volume is forecast to continue to decline for the remainder of this year, thus, larger lenders will be more fiercely competing for market share. Driven by their boards, the big banks will also be looking to boost purchase mortgage activity before the year comes to a close.

The share of lenders that expect purchase volume to increase over the next three months fell 26 to 33 percentage points, depending on loan type, with the largest decline of 33 percentage points on GSE-eligible loans, according to the survey.

‘Lenders' diminished purchase-mortgage demand outlook is broadly in line with the softened consumer housing sentiment seen in the August National Housing Survey results released last week,’ says Doug Duncan, senior vice president and chief economist at Fannie Mae, in a release. ‘Historically, as lenders face a more competitive market for loan volume, it's not uncommon to see some loosening in the lending standards; however, this time, the easing will likely be around the edges.’

The survey's findings are also in line with those of another report Fannie Mae released last month showing that larger lenders are currently more inclined than smaller lenders to pursue non-qualified mortgage loans.

‘Larger lenders are expecting to tap into the non-GSE-eligible and government loan market to maintain or grow their market share and offset their anticipated slowing mortgage demand as the peak spring/summer selling seasons are coming to an end,’ adds Duncan.

Larger lenders are also trying to meet pent-up demand from consumers looking for mortgage products with looser credit requirements; however, the report finds that consumer demand for single-family purchase mortgages has been more or less flat since the second quarter.

Recently, Citigroup and Bank of America announced that they were partnering with the Neighborhood Assistance Corp. of America to start offering mortgages with discounted interest rates as part of an effort to serve lower-income borrowers as well as those with tainted credit histories.


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