According to a new survey by Fannie Mae, small to midsize lenders are taking the opposite direction of their larger counterparts and tightening their credit standards. The first ever Mortgage Lender Sentiment Survey released by Fannie Mae polled lending executives to gain insight into their strategies for the remainder of 2014, and their opinions on the activity of the first two quarters.
The survey found the most common cause of the tightening lending standards was changing regulatory requirements, which may disproportionately affect smaller institutions.
"Lenders have been trying to find ways to manage their operational costs and meet new regulatory rules," said Doug Duncan, SVP and chief economist at Fannie Mae in a press release accompanying the survey. "They appear to feel cost constrained, and thus may be applying more conservative standards in their lending practices."
The survey also found that while executives remain optimistic about the outlook on mortgage demand, lending executives are "significantly more likely" to say it is difficult to obtain a mortgage loan in today's market.
Marcus McCue, executive vice president and chief business development officer with Guardian Mortgage, told HousingWire that some prospective homebuyers have been limited by the new, stricter lending standards. The new regulations come with added operational and risk management costs that disproportionately affect the balance sheets of smaller lenders, while larger institutions are better able to absorb the added costs.
As smaller lenders face increasing competition from large institutions, it is important to ensure that community lenders' risk management software is able to protect against unnecessary risk while still managing to offer competitive rates.