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Mortgage Lending Sentiment Mixed

Mortgage lenders expressed mixed feelings in the fourth quarter, with a quarterly decrease in the share of respondents to Fannie Mae's Mortgage Lender Sentiment Survey expecting lower profit margins in the next three months.

Forty-six percent of respondents expect that earning dip, which is an improvement over last quarter's 69%, while 38% believe profits will remain the same and 15% believe profits will increase.

Pessimism, according to the respondents, is primarily related to increased competition and changing market conditions, while those with a more bullish outlook cited GSE pricing and policies and strong consumer demand.

Lenders appear to have adopted a more neutral posture—more reported reduced consumer demand over the previous three months for purchase mortgages but improved demand for refinance mortgages, according to Fannie Mae VP and Deputy Chief Economist Mark Palim. Still, the reported change in mortgage demand over the previous three months, as well as expectations for the change in demand over the next three months, remained positive on net for purchase mortgages but still slightly negative for refinance mortgages.

"More lenders than not reported expectations that purchase mortgage demand will continue to grow, though the total share expecting such growth fell substantially compared to the previous quarter," Palim said. "Meanwhile, a plurality of mortgage lenders expects refinance activity to continue to wane from the highs of the past year and a half—even so, their outlook on likely refi volumes was improved compared to the prior quarter. Of the lenders who expect purchase mortgage demand to decrease in the coming months, high home prices and a limited supply of homes for sale were the primary reasons given—these were also among the top reasons provided by the 63% of consumers who believe it’s a ‘bad time to buy a home’, according to our latest Mortgage Lender Sentiment Survey results."

Palim went on to summarize that, on net, mortgage lenders’ profitability outlook improved slightly from last quarter.

"Although more lenders than not continue to expect profit margins to decline in the months ahead,” he added.

“The primary-secondary spread, an indicator of potential profitability, remains wider than the previous decade’s average." Palim says, adding that this is a positive sign for lenders.

Fannie Mae

However, he explained, in August it was at its narrowest since February and 53 basis points below the peak seen in August 2020.

"While lenders continue to overwhelmingly cite increased competition as their primary concern regarding future profitability, the share citing personnel costs for their diminished profit margin outlook increased significantly," he said, "suggesting that mortgage lenders’ ability to efficiently manage their workforces will be critical to their bottom lines as competitive pressures remain intense."

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media and Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning News, among others. Contact Christina at [email protected]

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