As home prices rise and mortgage demand cools, the competitive business arena of real estate and loans is starting to heat up. A new survey from Freddie Mac shows that mortgage lenders say they have eased credit standards recently and expect further easing in the coming months.

Lenders who said that they have loosened mortgage credit standards over the prior three months has ticked up gradually since the fourth quarter of 2016. The net share of lenders who also said that they plan to ease credit standards over the next quarter for GSE eligible, non-GSE eligible, and government loans reached or surpassed survey highs this quarter.

The main reason for the ease in credit is concerns over the current economic conditions in the country. Topping the list of mortgage concerns was the drop in purchase mortgage demand to the lowest net reading in years for the second-quarter period. This went in line with the latest Fannie Mae National Housing Survey®, which found the net share of consumers who reported that now is a good time to buy a home dropped to a record low.

A tightening national housing 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 and more support from the GSEs, including clarification on representations and warranties and tools that provide greater certainty during the loan underwriting process. Easing credit standards might also be due in part to increased pressure to compete for declining mortgage volume.”

Duncan added, “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. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”

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Erik Sandstrom
LoanSafe's Mortgage Expert
I'm a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.