Mortgage lenders: Demand for refinances falls to three-year low

Fannie Mae report shows bleak outlook for refinances amid rising rates

Mortgage lenders reported a negative profit margin outlook for the seventh consecutive quarter, proving that rising home prices and low housing supply are a continual threat, according to Fannie Mae’s second quarter 2018 Mortgage Lender Sentiment Survey.

It appears that lenders are not feeling so optimistic about the market. In fact, the net share of lenders reporting growth in the past three months, as well as the net share looking ahead the next three months dropped to the lowest reading for any second-quarter period within the past three years, according to the survey.

The reported demand for refinance mortgages declined over the prior three months, reaching its lowest level since 2014’s second quarter. The survey determined that lenders who expected a pickup in refinance demand in the next three months were few in numbers, also the survey’s lowest readings since 2015.

“Lenders remain bearish this quarter as they continue to face headwinds from rising mortgage rates, tight supply, and strong home price appreciation, which have drastically reduced refinance activity and restrained home purchase affordability,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said.

Lenders reported demand growth for non-GSE eligible loans over the prior three months hit a two-year high for the same quarter, and refinance mortgage demand remained relatively stable but continued to be negative but from the last quarter.  

The net share of lenders reporting easing remained stable, however, the net share reporting easing of credit standards for non-GSE eligible loans appeared to rise from last quarter, and net easing share for non-GSE eligible loans for the next three months reached a survey high.

“These factors have combined to squeeze mortgage origination volumes and have increased competitive pressures. Increased competitiveness will likely persist as a top driver of lenders’ mortgage business strategy,” Duncan said. “We expect this will prompt businesses to turn to cost-cutting as a means of managing their bottom lines, with payroll reduction likely to assume a more prominent role in future belt-tightening efforts.”

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