Fannie Mae: Lenders Forecasting Negative Profit Margins Ahead
December 27, 2017
Mortgage lenders are forecasting a negative profit margin outlook for the next three months, according to Fannie Mae's Fourth Quarter Mortgage Lender Sentiment Survey.
On net, more lenders reported declining demand over the prior three months, continuing the trend that started in the first quarter of this year. For the next three months, the net share of lenders expecting growth in demand for refinance mortgages dropped from the third quarter across all loan types, which Fannie Mae dubbed the worst outlook in a year.
Furthermore, Fannie Mae stated that the net share of lenders reporting easing of credit standards over the prior three months has continued its upward trend since the fourth quarter of last year, reaching new survey highs for the second consecutive quarter. Lenders continue reporting expectations to grow Fannie Mae, Freddie Mac and Ginnie Mae shares over the next 12 months and reduce portfolio retention and whole loan sales shares. And slightly more lenders reported expectations to decrease their shares of mortgage servicing rights sold, retained and serviced in-house.
"Key trends have persisted throughout this year," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Lenders who see declining profits outweighed those noting improvements in the bottom line for the fifth consecutive quarter. Three-fourths of those seeing deteriorating profits cite competition as the most important reason—a survey high—compared with only about one-third two years ago. This is not surprising given that refinance volume continues to shrink.”
Duncan added that the survey was “consistent with our forecast for a steady drop in refinance originations this year. With the outlook calling for rising interest rates and continued tight housing inventory constraining home sales, increased competition will likely continue to drive lenders' mortgage business strategies.”
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