Mortgage Lender Outlook For Q1 ‘Significantly Less Positive,’ Fannie Mae Says

Mortgage lenders are expecting that their profits will increase slightly in the first quarter relative to the fourth quarter, but it’s not going to be as favorable when compared with the first quarter of 2016, according to Fannie Mae’s Mortgage Lender Sentiment Survey.

Lender outlook on profits rose slightly from its three-year low in the fourth quarter but remains significantly less positive, according to the report.

Larger institutions are more likely to expect a decrease in profit margin outlook this quarter, Fannie Mae says.

Those lenders expecting lower profit point to competition from other lenders and market trend changes (e.g., shift from refinance to purchase) as being the top reasons.

Regulatory compliance, which has historically been a top reason for lenders’ decreased profit outlook, stayed near its survey low compared with the previous quarter.

However, lenders’ expectations for purchase volume decreased substantially, mostly because of unfavorable mortgage rates. The net share of lenders expecting increased purchase demand over the next three months for conventional mortgages fell to the lowest level recorded in any first quarter in the survey’s history.

For refinances, the expectations across all loan types rose slightly from the prior quarter, which had registered the survey’s worst performance.

“This quarter, lenders’ optimism toward the overall economy and home price appreciation hit survey highs, mirroring the consumer confidence seen in our February Home Price Sentiment Index,” says Doug Duncan, senior vice president and chief economist at Fannie Mae. “However, lenders’ profit margin outlook remains significantly less positive than this time last year and two years ago. Lenders cite competition from other lenders and a market shift from refinance to purchase – both of which reached survey highs – as the top reasons for the weak profit margin outlook.

“With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market,” Duncan adds. “Lenders may choose to adjust their production capabilities and staff resources given their profitability outlook.”


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