Wednesday , 20 January 2021

Mortgage Lenders Much Less Optimistic About Profitability

According to Fannie Mae’s Mortgage Lender Sentiment Survey for the fourth quarter,. mortgage lenders’ profitability outlook for the next three months declined from last quarter, with a greater share of lenders now expecting profit margins to decrease.

Survey results show that only 19% of lenders believe profit margins will increase, compared to 48% in the prior quarter. Thirty-three percent believe profits will remain the same, and 48% believe profits will decrease.

Fannie Mae says these results reflect a dampening of aggregate enthusiasm expressed over the prior six quarters, in which lenders indicated increasingly optimistic profitability expectations.

Reported consumer demand remained strong in the fourth quarter across all loan types, and in many cases remained near or recorded survey highs. Reported purchase mortgage demand over the past three months set a new survey high for GSE-eligible loans and a new fourth-quarter survey high for government loans.

Looking ahead, purchase mortgage demand expectations fell compared to the prior quarter but reached new highs for any fourth quarter in the survey’s history. For refinances, lenders reported that consumer demand fell on both a looking-back and looking-ahead basis across all loan types but generally remains strong.

“We currently expect loan origination volume to total $4.1 trillion in 2020 – the highest on record since 2003,” says Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “However, moving into 2021, lender sentiment paints a more cautious picture, aligning neatly with our recently reported consumer-side sentiment expectations, which appear to have plateaued, and supporting our forecast for a more modest pace of housing growth.

“Refinance demand growth expectations for the next three months fell significantly from last quarter across all loan types,” he adds. “Additionally, lenders’ profitability outlook has weakened. The resurgence of COVID-19 cases and uncertainty around the economic recovery path pose risks to the pace of housing growth.”

Photo: Doug Duncan

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