MortgageReal Estate

Lenders in a funk over mortgage market outlook

Fannie Mae's Mortgage Lender Sentiment Survey reveals moral is very low

Lenders reported a net negative profit margin outlook for the eighth consecutive quarter in the face of further erosion of purchase mortgage demand.

According to Fannie Mae's Mortgage Lender Sentiment Survey, lenders are feeling worse about the market this quarter than they were last year and last quarter. The biggest reason they have the mortgage blues? Competition from other lenders was the most cited reason by survey participants for the squeeze on margins.

“Lenders continued their bearish trend this quarter, as they note ongoing anemic refinance activity and the worst purchase mortgage demand for a third quarter in the survey’s history,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement.

Indeed, there has been a growing movement toward consolidation as a result of tightening margins, especially in the independent mortgage banker space (which you can read about in the upcoming HW Magazine).

Up until now, lenders have been trying to ease credit standards to kickstart the sputtering purchase market, but according to the report, lenders are easing off that tack.

“The profit outlook remains negative, with those lenders expecting decreased profit margins outweighing those anticipating increases for the eighth consecutive quarter. For the first time this year, consumer demand was one of the top two reasons for the downbeat profit outlook, cited by more than one-third of lenders – a record high. Meanwhile, the pace at which lenders are easing credit standards has slowed,” Duncan said.

Duncan said this is because many lenders are wondering if easing credit requirements might not be the true solution to affordability, one of the main ice cubes in the mortgage market’s coffee, and that even if it is, that they may not be able to afford to take it far enough to make a difference.

“The net shares of lenders reporting easing credit standards for GSE-eligible and government loans are less than half the peak shares reached at the end of last year,” Duncan said.

“This may suggest the realization among lenders that combatting declining affordability by making it easier to obtain mortgages might not be the answer – or simply that there is little room for additional easing going forward,” he added.

Mix all this negativity together and what you get is the worst lender sentiment toward purchase mortgage prospects this survey has ever recorded for any Q3, a still negative outlook on a barely existent refinance mortgage market and an abysmal outlook for profitability in general.

If you know a lender, buy him or her a drink, and settle in for a long winter.

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