Fannie Mae's Q4 2020 Mortgage Lender Sentiment Survey reported that mortgage lenders' profitability outlook over the next three months has declined compared to Q3. The survey showed that a higher number of lenders expect profit margins to decrease, with only 19% of lenders believing profit margins will increase compared to 48% in Q3. Additionally, 33% believe that profits will remain the same and 48% believe profits will decrease.
"Consistent with key industry indicators, the fourth quarter MLSS results support the strength of the mortgage industry we've seen in 2020, despite the pandemic," said Fannie Mae senior vice president and chief economist Doug Duncan. "The net share of lenders reporting purchase demand growth for the past three months reached a new survey high for GSE-eligible loans. For refinance mortgages, although the net share of lenders reporting demand growth for the prior three months dipped slightly from last quarter's high across all loan types, it has remained at a historically high level. We currently expect loan origination volume to total $4.1 trillion in 2020, the highest on record since 2003."
"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," added Duncan. "Refinance demand growth expectations for the next three months fell significantly from last quarter across all loan types. 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. Pending sales and purchase mortgage applications have recently pulled back from highs as pent-up demand from the spring has receded. Tight inventories, along with higher home prices, will likely continue to restrain sales, and the recent compression of the primary/secondary mortgage spread appears to confirm mortgage lenders' lower profitability expectations."
The Fannie Mae survey also reported that mortgage spread compressed to pre-pandemic levels but remain above the long-term average. Consumer demand is strong on both the purchase and refinance side of the industry and while credit standards have tightened, they are expected to see little change over the next three months.
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