Why are mortgage lenders optimistic in the first quarter?

Fannie Mae survey shows lenders think credit easing, demand growing

Despite a severe slowdown in mortgage applications, a drop in home sales and starts, and a slowing in home price growth, Fannie Mae’s first quarter 2015 Mortgage Lender Sentiment Survey suggests that mortgage lenders are optimistic.

This quarter’s results show that more lenders expect mortgage demand and their profit margin to grow over the next three months.

Results also show that credit tightening observed last year has continued to trend down gradually moving into 2015.

For GSE-eligible purchase loans, 71% of lenders surveyed say they expect purchase mortgage demand to go up over the next three months, compared with 59% reported during the same quarter last year. Additionally, 41% of lenders reported increased profit margin expectations, compared with 21% during the same quarter last year.

“The first quarter results mirror a similar trend among American households, as shown in our recently released National Housing Survey data,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “These results are consistent with our view that an improving economy, strengthening employment, and increasing consumer confidence should support a modest housing expansion in 2015, after an uneven and disappointing year for housing activity in 2014.”

Here are some highlights of the survey:

  • Compared with the general population of consumers, senior mortgage executives continue to be more optimistic about the overall economy and more pessimistic about consumers’ ability to get a mortgage today.
  • After gradually trending down throughout 2014, lenders’ purchase mortgage demand expectations for all types of loans (GSE eligible, Non-GSE eligible, and government loans) increased this quarter across institution sizes and types (mortgage banks, depository institutions, and credit unions), although there might be seasonal influences.
  • This quarter, across all loan types, the share of lenders reporting credit easing is higher than the share of lenders reporting credit tightening. Mortgage banks continue to be more likely than depository institutions to report credit easing.
  • Most institutions reported that they expect to maintain their mortgage strategy in relation to secondary market outlets over the next year. Among larger institutions and mortgage banks, more lenders reported expectations to decrease rather than increase the share sold to GSEs.
  • The majority of institutions reported that they expect to maintain their Mortgage Servicing Rights (MSR) execution strategies over the next year. Among mortgage banks, more lenders reported plans to retain rather than sell their MSRs.
  • Lenders’ profit margin outlook has improved significantly from last year, in particular among larger lenders, with the share of lenders expecting their profit margin to go up over the next three months increasing significantly this quarter.  

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