Mortgage Lenders More Upbeat about Loan Demand and Profitability

Written By: Joel Palmer, Op-Ed Writer

Mortgage processors and underwriters are expected to handle a surge in volume and generate increasing profits in the coming months, according to a recent report from Fannie Mae.

Fannie Mae’s latest quarterly Mortgage Lender Sentiment Survey, released last week, shows that lenders’ optimism for growth among all loan types is the highest it’s been in nearly three years.

The survey of mortgage lenders revealed that the industry’s net profit margin outlook turned positive for the first time in nearly three years. This is due to strong demand expectations for both purchase and refinance mortgages.

For the first time in more than two years, a majority of lenders expect increasing demand for refinance mortgages.

Prior to the year, the industry expected a decline in refinances and flat growth of purchase mortgages due to higher interest rates. However, mortgage rates have been on a steady decline for most of the year, with the 30-year rate recently falling to a two-year low.

According to the survey:

•62 percent of surveyed lenders expect an increase in purchase demand for GSE eligible loans in the next three months, while only 3 percent expect a decline.

•53 percent reported demand growth for GSE eligible loans in the previous three months, compared with 14 percent that reported a decline.

•For non-GSE eligible loans, 60 percent of lenders reported a increase in demand in the previous quarter, with 12 percent reporting a decline.

•Over the next three months, 58 percent of lenders expect rising demand for non-GSE eligible mortgages, while only 3 percent anticipate falling demand.

•About 31 percent anticipate growth in GSE refinances in the next quarter, with 20 percent expecting declines.

•48 percent indicated an increase in GSE-eligible refinances in the previous quarter, compared with 24 percent that experienced a decline.

•For non-GSE eligible loans, 38 percent and 25 percent reported rising demand and falling demand, respectively, over the past three months. The survey showed 25 percent expect it to increase in the next three months, with 20 percent anticipating a decrease.

“Lenders are signaling strong demand-driven mortgage market dynamics, with optimism for both their consumer demand and profitability outlooks reaching multi-year highs," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

The survey also showed that 41 percent of lenders expect an increase in profit margin during the next three months, while only 12 percent expect a decline. This is the best industry outlook for profit margins since the second quarter of 2016.

“With brighter volume expectations, the profit margin outlook improved markedly, helping the net share of lenders reporting rising profits turn positive for the first time in nearly three years, with consumer demand cited as the top reason for the rosier outlook,” said Duncan.

“A lift in lender sentiment from depressed levels is an encouraging sign; however, many challenges remain, including the continued shortage of entry-level housing,” said Duncan. “In addition, it appears that the meaningful easing of lending standards is a thing of the past.”

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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