Mortgage lenders are slightly more optimistic says Fannie Mae

But despite better expectations, the net profit margin remains negative

Mortgage lenders are slightly more optimistic says Fannie Mae

There are signs of increased optimism among mortgage lenders despite overall negative net profit margins.

Fannie Mae’s Mortgage Lender Sentiment Survey for the first quarter of 2019 shows that lenders say there is stronger expectation of demand for purchase and refinance loans.

"While the results seem to portray the gloomiest picture of purchase mortgage demand during the prior three months in the survey's five-year history, the net share of lenders expecting rising demand over the next three months exceeded the level recorded in the same quarter last year,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Lenders' view of the refinance market was somewhat rosier, as both recent and expected demand improved to the best showing in two years, helping to support lenders' improved profit margin outlook."

Purchase mortgage demand

  • For purchase mortgages, across all loan types (GSE eligible, non-GSE eligible, and government), the net share of lenders reporting demand growth over the prior three months remained negative and fell further to reach a new survey low. However, demand growth expectations for the next three months improved, showing a more optimistic outlook compared with one year ago.

Refinance mortgage demand

  • For refinance mortgages, while more lenders continued to report weaker refinance demand than those seeing rising demand, the net share of lenders reporting demand growth over the prior three months increased significantly to the highest level in two years across all loan types. Similarly, the net share expecting demand growth remains negative but also improved to the highest level in two years.

Easing of credit standards

  • Overall, lenders on net continued to report easing lending standards at a modest pace across all loan types.
  • For GSE eligible loans, the share reporting easing lending standards for the prior three months was only slightly above the share reporting tightening, with the net share reporting easing lending standards reaching the lowest level in four years.

Profit margin

  • Lenders' net profit margin outlook has stayed negative for the tenth consecutive quarter, but has improved significantly from the survey low in the prior quarter (Q4 2018) and one year ago.
  • For the ninth consecutive quarter, "competition from other lenders" has continued to be cited as the top reason for lenders' decreased profit margin outlook. This quarter, "consumer demand" also continues to be the second most important reason.

"While more lenders anticipate declining rather than rising profit margins, continuing the trend that started in the fourth quarter of 2016, the net share expecting falling profit margins decreased from a survey high in the prior quarter to the lowest share in nearly two years," added Duncan. "Lenders' improved demand outlook going into the spring selling season bodes well for our forecast of relatively flat mortgage volume this year following the double-digit drop in 2018."