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Lenders Continue to Loosen Credit Standards

Lenders are continuing to loosen up their credit standards—and they plan to keep on doing it as the year goes on, according to the Q2 2017 Mortgage Lender Sentiment Survey released by Fannie Mae on Monday. In fact, the share of lenders who say they plan to ease credit standards on GSE, non-GSE, and government loans over the next three month has hit its highest point since the survey’s inception.

Overall, the share of lenders who say they have eased credit standards has risen steadily since Q4 of last year. But this uptick in looser credit standards is no surprise, especially given the number of lenders who reported declining purchase activity this quarter.

“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 the second-quarter period,” Fannie Mae reported. “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.”

According to Doug Duncan, SVP and Chief Economist at Fannie Mae, lenders are concerned about being outpaced by their competitors.

“Expectations to ease credit standards climbed to survey high points in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” Duncan said. “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. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”

Fewer compliance concerns, increased GSE support, and greater clarity on warranties and underwriting tools have also allowed lenders to loosen up on credit standards, Duncan said. Fannie Mae conducts its Mortgage Lender Sentiment Survey on a quarterly basis.

Fannie Mae Is Getting Into the Act Also:

As of July 29th Fannie Mae’s Desktop Underwriter Version 10 will allow debt-to-income ratios as high as 50%, up from 45% currently.

Fannie will soon permit loan-to-value ratios on adjustable-rate mortgages up to 95%. That means you only need 5% equity to get an ARM. Buying a two-unit owner-occupied property the current ARM LTV limit is 75% but will now go to 85% and a four-unit owner-occupied property will see the max LTV rise from 65% to 75%.

It will also get easier to borrow if you’re self-employed, the new Desktop Underwriter will require just one year of personal and business tax returns. That should mean less headaches and paperwork, and potentially more approvals if two years of documentation don’t paint your business in as favorable a light.

Finally, Fannie will ease up on borrowers with disputed credit tradelines so that if Desktop Underwriter approves the file, no more action will be necessary.

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