Mortgage Lenders Remain Optimistic About Purchases, But Cautious About Profits this Quarter

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Mortgage lenders are expecting increased demand for purchase loans this quarter, although they do not expect this to be a good quarter for profits, according to the most recent Mortgage Lender Sentiment Survey results released by Fannie Mae in December. In fact, mortgage lenders’ net-profit margin outlook has been negative for five consecutive quarters.

Mortgage lenders of all sizes expressed similar sentiments about profits this quarter, although larger lenders were more likely to do have a negative outlook, according to Fannie Mae.

Purchase vs. Refinance

The net share of lenders reporting purchase demand growth over the prior three months in Q4 reached the lowest reading for any fourth quarter over the past three years. However, the net share of lenders expecting increased demand this quarter is in line with other Q4 survey results over the past three years.

The net share of lenders expecting growth in demand for refinance mortgages dropped from Q3 2017 results across all loan types, reaching the worst outlook in a year.

What’s Behind the Numbers?

Competition is still the biggest reason that mortgage lenders cited for their low profit expectations in the survey. In fact, the number of lenders who named this as the top reason for their negative outlook was the highest ever. Other factors they cited were consumer demand, staffing, and market trend changes.

Doug Duncan, Fannie Mae’s senior vice president and chief, said: “Three-fourths of those seeing deteriorating profits cite competition as the most important reason – a survey high – compared with only about one-third two years ago. This is not surprising given that refinance volume continues to shrink.”

“More lenders reported a pullback in refinance demand from the prior quarter than those who saw an increase, continuing the trend that started at the beginning of the year,” he said. “This finding is consistent with our forecast for a steady drop in refinance originations this year. With the outlook calling for rising interest rates and continued tight housing inventory constraining home sales, increased competition will likely continue to drive lenders’ mortgage business strategies.”

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