Fannie Mae's Q1 2021 Mortgage Lender Sentiment Survey reported that 52% of lenders believe profit margins will decrease, compared to 48% in the previous quarter. Meanwhile, 33% profits will remain the same and 15% still believe profits will increase.
"Despite continued strong expectations for purchase mortgage demand moving forward, many lenders are signaling caution about their profitability and market competitiveness," said Doug Duncan, Fannie Mae senior vice president and chief economist. "This quarter, the largest net percentage of lenders in the survey history are expecting a decrease in their profit margin outlook. Those who expected a lower profit margin cited competition from other lenders as the primary reason, reaching a survey high last seen in Q1 and Q2 of 2018, while a market shift from refinance to purchase was cited as the next biggest reason for the first time since Q4 2019."
"Compounding their profit margin concerns, lenders also reported a slow pace of refinance demand," added Duncan. "With a modestly higher interest rate forecast, we expect refinance activity to gradually wane. The recent rise in the 10-year Treasury yield is putting some upward pressure on mortgage rates. Some lenders commented that for now, they are willing to absorb some of these costs to maintain volume. However, in the longer term, continued upward pressures on interest rates would likely dampen home sales and mortgage originations as lenders raise mortgage rates. This, in turn, might push lenders to reduce their production capabilities."
According to Fannie Mae, reported consumer demand in the first quarter was generally mixed compare to the previous quarter, depending on loan type and timeframe. The company's report also states that looking ahead the next three months, purchase mortgage demand expectations rose substantially across all loan types, compared to the previous quarter.
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