Rising rates and increased competition are shrinking profit margins. Still, lenders are more optimistic about the economy than they’ve been in years
Rising rates and increased competition are shrinking profit margins – but mortgage lenders are more optimistic than ever about the economy, according to Fannie Mae.
Lenders from institutions of all sizes are optimistic about the direction of the economy, according to Fannie’s latest Mortgage Lender Sentiment Survey, with the share of lenders who think the economy is on the right track hitting its highest level since the GSE started tracking lender sentiment.
However, expectations of demand for purchase mortgages dropped considerably as lenders were faced with rising rates. The share of lenders expecting increased demand for purchase mortgages hit the lowest level of any first quarter in the survey’s history, according to Fannie Mae.
“This quarter, lenders’ optimism toward the overall economy and home price appreciation hit survey highs, mirroring the consumer confidence seen in our February Home Price Sentiment Index,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “However, lenders’ profit margin outlook remains significantly less positive than this time last year and two years ago. Lenders cite competition from other lenders and a market shift from refinance to purchase – both of which reached survey highs – as the top reasons for the weak profit margin outlook. With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market. Lenders may choose to adjust their production capabilities and staff resources given their profitability outlook.”
Fannie also found that lenders saw modest easing of credit standards across all loan types over the first quarter. Most lenders expect credit standards to stay about the same for the time being, Fannie reported. And although profit margins have shrunk, lenders’ expectation of profit-margin growth was actually slightly better than the previous quarter, when it hit a three-year low.
Related stories:
Consumer confidence in housing hits all-time high
Fannie Mae launches new rehab supplemental loan
