More than a quarter of lenders anticipate profits to increase
Strong consumer demand continued to boost lenders’ overall expected profitability as Fannie Mae’s mortgage lenders’ profit margin outlook for the next three months remained positive.
Around 44% of lenders believed they would not see significant increases in profit margins this quarter, according to Fannie Mae’s Q4 2019 Mortgage Lender Sentiment Survey. Meanwhile, 28% thought profit margins would drop and 27% anticipate profits to rise.
The Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report showed that lenders earned an average of $1,924 per loan last quarter, compared to a third-quarter average of $1,061 over the past three years.
"Mortgage lenders' profit margin outlook remains steady following gains in the first three quarters of 2019," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Credit standard trends also continue to hold steady amid the largely unchanged profitability outlook. Lower interest rates, which drove the refinance boom, have been the engine driving mortgage demand growth this year. Lenders' purchase and refinance demand expectations align with our own forecast. With interest rates stabilizing in 2020, we expect a decline in refinance activity and slightly higher purchase activity."
Highlights of the mortgage lender sentiment survey include:
- For purchase mortgages, the net share of lenders reporting demand growth over the past three months remained positive and hit its highest level for any fourth quarter in the survey's history for all loan types
- For refinances, the net share of lenders reporting demand growth over the last three months continued the uptrend that began in Q1 2019 and reached its peak since Q1 2014
- Demand growth expectations on net shares for the next three months plummeted from the survey highs of last quarter, but the net share of lenders predicting an increase in refinance volumes remained well above share across all loan products
- Most lenders reported no significant changes in their underwriting credit standards for the last three months and predicted no major changes for the next three months
