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Mortgage Lenders Expect Profit Margins To Shrink

Katie Jensen
Jun 14, 2021

69% of lenders believe profit margins will decrease in the months ahead, while 19% believe profits will remain the same, and 11% believe profits will increase.

According to Fannie Mae’s Mortgage Lender Sentiment Survey, mortgage lenders expect profit margins to retreat for the third consecutive quarter, falling even further from last year’s highs. The second quarter survey showed 69% of lenders believe profit margins will decrease in the months ahead compared to 52% in the previous quarter. Only 19% believe profits will remain the same and 11% believe profits will increase. 

Doug Duncan, Fannie Mae senior vice president and chief economist, said, “Despite elevated optimism toward the U.S. economy, lenders show a cautious outlook for their mortgage business. This quarter, the largest net percentage of lenders in the survey's seven-year history are expecting a decrease in their profit margin outlook. This is the third quarterly decline from the lender profitability highs of 2020. Those who expected a lower profit margin continued to cite competition from other lenders and market trend changes as the primary reasons.” 

Over the past 3 months, mortgage lenders have reported increased demand for purchase loans, across all types of loans, but significantly reduced refinance demand. For the first time since Q1 of 2019, the net share of lenders reported net negative demand growth for refinance mortgages. For GSE-eligible and government loans, net growth reached the lowest reading since the Q4 of 2018. 

Lenders have strong expectations for purchase demand growth over the next 3 months, although demand for GSE-eligible and government loans is down, and refinance expectations fell significantly across all loan types. 

“Lenders reported a significant refinance demand decline over the past three months and expect the decline to continue, with their refinance demand growth expectations reaching the lowest level seen since Q4 2018. With the shift from refinance to purchase business, some lenders commented that purchase transactions are harder to complete and have lower margins," Duncan added. 

"Recent economic indicators, however, paint a somewhat more positive picture. Though the primary-secondary mortgage spread has continued to narrow, it remains wider than the level seen pre-pandemic, suggesting that lenders are still making profits, though not as much as they did in 2020. Purchase mortgage applications have trended slightly lower in recent weeks; however, they remain fairly strong, and higher than the pre-pandemic level, likely because of continued low mortgage rates.” 

According to the June National Housing Survey released early this week, “Consumer demand remains strong since 'home purchase on next move' is at a survey high, despite the challenges of accelerated home price appreciation and insufficient supply.”

For additional information and analysis, read the Q2 2021 MLSS summary research report, or visit the Fannie Mae Mortgage Lender Sentiment Survey page on

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