Lenders' profitability outlook continues to show signs of strength
The latest Fannie Mae Mortgage Lender Sentiment Survey paints a positive picture as the mortgage industry continues to benefit amid the coronavirus pandemic.
Mortgage lenders reported brighter views on profit margins thanks to robust consumer demand, with 48% of lenders believing profits will increase from the previous quarter, according to the Q3 survey. Only 15% of lenders predict profits will decrease, and 37% think it will stay the same.
"This quarter's MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19," said Doug Duncan, Fannie Mae senior vice president and chief economist.
According to Duncan, "lenders' profitability outlook has remained a strong positive" for three straight quarters now due to pent-up consumer demand, continued low mortgage rates, and favorable mortgage spreads.
In August, the average primary mortgage spreads (FRM 30 contract rate versus 10-year Treasury) came in at 229 basis points, above the long-run average of 170 basis points.
Purchase mortgage demand also spiked in the third quarter, while demand for refinances has remained stable. The report showed that refinance demand growth for government loans has hit a new record high (the second-highest reading since 2014 for GSE-eligible and non-GSE-eligible loans) in Q3.
"Lenders' reported purchase mortgage demand for the prior three months across all loan types has returned from sharp drops to the levels seen last year for the same quarter," he said. "Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception."
Lenders continued to report a crunching in credit standards for the past three months but projected no further tightening in the fourth quarter.
"Lenders attributed credit tightening to the uncertainty on the economic recovery and labor markets resulting from COVID-19," Duncan said. "Although the housing market is showing remarkable strength amid the economic and health crisis, potential longer-term downside risks remain, including labor market weakness, low inventory, and home price uncertainty."