The Phaserl


“Mortgage Demand Cools”: Fannie Mae

by Wolf Richter, Wolf Street:

Home prices are “weighing on affordability and constraining sales.”

Here’s another piece of an incomplete behind-the-scenes puzzle of the housing market that has surged to new record highs. Fannie Mae — one of the Government Sponsored Enterprises (GSE) that guarantee eligible mortgages and package them into mortgage-backed securities that are then sold to institutional investors — had some disconcerting words in today’s Mortgage Lender Sentiment Survey for Q2:

More mortgage lenders say they have eased credit standards recently and expect further easing in the coming months.

Why? Cooling demand for mortgages. Mortgage lenders in the survey include banks of all sizes, specialized non-bank mortgage lenders (they don’t take deposits), and credit unions.

The net percentage of mortgage lenders that reported having eased credit standards over the past three months has been rising since Q4 2016. And the net percentage of lenders that expect to ease credit standards over the next three months for all three types of mortgages — GSE eligible, non-GSE eligible, and government loans such as FHA and VA insured mortgages – “reached or surpassed survey highs this quarter.”

The chart below shows the net percentage of mortgage lenders who expect to loosen credit standard of GSE-eligible mortgages – the “conforming” mortgages that adhere to GSE underwriting guidelines, including loan limits:

The driver behind the loosening of mortgage standards? Lenders want to write more mortgages. That’s their business. But the business hasn’t been going all that well recently, just when home prices across the country, and in particular in certain cities, have surpassed prior bubble highs, and prudence would now be more important than ever. So what drives them to lower their standards?

Cooling demand for mortgages.

Lenders’ increasing concerns over “economic conditions” drove the easing of lending standards, as mortgage demand has taken a hit, and as the share of lenders who reported growth in purchase-mortgage demand “dropped to the lowest net reading in years.”

The report: “Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for a second-quarter period”:

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