With interest rate hikes expected and most homeowners who could benefit from refinancing, mortgage bankers don’t expect the sometimes record gains of the last year or so to continue. Fannie Mae’s Third Quarter Mortgage Lender Sentiment Survey (MLSS) found just under a majority of respondents expect their profit margins to decline over the next three monthsalthough that has also been the main sentiment for the past three quarters.
The latest survey found that 46 percent of lenders expect profits to decline, up from 69 percent in the previous survey. 38 percent expect their profits will stay the same and 15 percent expect them to be higher.
Those expecting lower margins cited increased competition and changing market conditions for their pessimism while GSE prices and guidelines as well as strong consumer demand were the main reasons cited at lenders with more positive profitability prospects.
“Net profitability prospects for mortgage lenders have improved slightly from last quarter, although more lenders continue to expect margins to decline in the months ahead,” said Fannie Mae Vice President and Deputy Chief Economist Mark Palim. “The primary-secondary spread, an indicator of potential profitability, remains larger than the decade average – a positive sign for lenders – despite being the narrowest since February and 53 basis points below the August 2020 high Lenders continue to overwhelmingly cite increased competition as their primary concern for future profitability, the proportion that heads staff costs for their prospects of reduced profit margins has increased significantly, suggesting that The mortgage lenders’ ability to manage their workforce efficiently will be critical on their bottom line, as competitive pressures are still high. “
More lenders reported lower demand for purchase receivables than before in the past three months, but improved refinancing demand. Demand expectations for the next three months remained positive for sale mortgages, but slightly negative for refinancing.
“Mortgage lenders appear to have taken a more neutral stance, reporting mixed expectations for the MLSS for both purchase and refinance mortgage demand over the next three months,” continued Palim. “In the third quarter, more lenders expressed expectations that the demand for mortgage purchases would continue to rise, although the overall proportion expecting such growth has declined significantly compared to the previous quarter. Meanwhile, a large number of mortgage lenders expect refinancing activity to decline further from the highs of the past year and a half – nevertheless, their prospects for the probable refi volume improved compared to the previous quarter. The main reasons given were high home prices and a limited supply of real estate – This was also a top reason, according to our latest Home Purchase Sentiment Index, cited by 63 percent of consumers who believe it is ‘a bad time to buy a home’.
More lenders reported easing credit standards in the past three months, and the proportion who expected them to ease further for GSE-eligible loans. Expectations for easing non-GSE lending declined and remained unchanged for government lending.
A total of 211 executives in the lending business took part in the survey for the third quarter of 2021. 84 represented mortgage lenders, 68 worked for custodians and 39 for credit unions.