Lenders report decreasing mortgage demand in Q2 2018

Although a majority of lenders said they considered it easy to get a mortgage in the second quarter of 2018, respondents also reported a decreasing demand for the loans and continued to expect their profit margins to shrink.

Fannie Mae's Mortgage Lender Sentiment Survey for the quarter found that while lenders were more likely than not to say demand for purchase mortgages is up and will continue to climb, the net share reporting this situation was at its lowest point in three years. For the seventh quarter in a row, a net share of lenders said they don't expect refinance mortgage demand to pick up in the near future.

"Lenders remain bearish this quarter as they continue to face headwinds from rising mortgage rates, tight supply, and strong home price appreciation, which have drastically reduced refinance activity and restrained home purchase affordability, said Doug Duncan, senior vice president and chief economist at Fannie Mae. "These factors have combined to squeeze mortgage origination volumes and have increased competitive pressures. Increased competitiveness will likely persist as a top driver of lenders' mortgage business strategy. We expect this will prompt businesses to turn to cost-cutting as a means of managing their bottom lines, with payroll reduction likely to assume a more prominent role in future belt-tightening efforts."

A net share of 26 percent of respondents in the lender survey said demand for GSE eligible purchase mortgages was up in the past three months. This type of loan meets the underwriting guidelines of government-sponsored enterprises such as Fannie Mae and Freddie Mac. The share was down from 28 percent in the second quarter of 2017 and 70 percent in the second quarter of 2016. Forty-seven percent on net said they expect GSE eligible loan demand to increase in the next three months, down from 55 percent in the previous year and 60 percent in the second quarter of 2016.

For non-GSE eligible purchase loans, a net share of 44 percent said purchase loan demand had grown in the past three months – up from 28 percent in the second quarter of 2017 and 43 percent in the second quarter of 2016 to reach a two-year high. Fifty-one percent on net said they believe non-GSE purchase loan demand will grow in the next three months, unchanged from the previous year and up from 43 percent in the second quarter of 2016.

A net share of 15 percent said demand for government-backed purchase loans was up in the past three months, down from 28 percent in the second quarter of 2017 and 57 percent in the second quarter of 2016. A net share of 39 percent expected demand for this type of mortgage to increase in the next three months, down from 59 percent in the previous year and 58 percent two years earlier.

Demand for refinance mortgages remained low. On net, 73 percent said demand for GSE eligible mortgages has declined in the past three months and 52 percent expect it to continue to go down in the next three months. Net shares of 67 percent said non-GSE eligible refinance mortgage demand fell in the past three months and 46 percent expect it to continue to shrink. Seventy-three percent on net said government-backed refinance mortgage demand is down, while a net share of 54 percent said they think it will continue to go down.

While the share of lenders reporting that they were easing credit standards was relatively unchanged, the net share saying that they have expect to ease standards for non-GSE eligible loans hit a survey high. For this type of loan, a net share of 14 percent said they have eased standards in the past three months and 17 percent expect to do so in the next three months.

On net, 12 percent of lenders said they have eased standards for GSE eligible loans in the past three months and 8 percent said they will do so in the next three months. A net share of 13 percent said they have eased standards for government-backed loans, while a net share of 5 percent believe they will do so