Mortgage

Fannie Mae: Almost half of lenders expect profit margins to increase in next 3 months

For the third consecutive quarter, lenders' profitability outlook has remained a strong positive

Mortgage lenders continued to be optimistic in the third quarter, with 48% of lenders saying they think profit margins will increase compared to the prior quarter, according to Fannie Mae‘s Mortgage Lender Sentiment Survey. Thirty-seven percent think profits will remain the same, while only 15% see profits decreasing in the next three months.

“This quarter’s MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19,” said Doug Duncan, Fannie Mae SVP and chief economist. “Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception. For the third consecutive quarter, lenders’ profitability outlook has remained a strong positive.”

According to the survey, lenders’ expected purchase mortgage demand growth rose significantly from last quarter across all loan types, with net expectations of growth rising from 4% to 51% – putting purchase demand above pre-pandemic levels and back on par with those set the same time last year.

This sentiment is further evidenced by a report from the Mortgage Bankers Association that purchase applications experienced their 16th-straight week of year-over-year gains on Wednesday, and remained 40% higher than the same week a year ago.

For refinances, Fannie Mae’s survey revealed the net share of lenders who expect demand growth reached a survey high for government loans and the second highest reading since 2014 for GSE-eligible and non-GSE-eligible loans.

According to Duncan, pent-up consumer demand, continued low mortgage rates, and favorable mortgage spreads helped drive lender profitability and optimism.

In the third-quarter, lenders continued to report credit tightening standards, but expect no further tightening in the next three months, Duncan said. Lenders attributed the constant tightening to the uncertainty of the economic recovery and labor markets resulting from the pandemic.

“Although the housing market is showing remarkable strength amid the economic and health crisis, potential longer-term downside risks remain, including labor market weakness, low inventory, and home price uncertainty,” Duncan said.

Consumers, on the other hand, are showing more confidence as a recent Fannie Mae survey revealed 48% of respondents believe it is a good time to buy a home and 59% believe it is a good time to sell.

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