Lender outlook turns positive for first time in 3 years

The net profit-margin outlook for mortgage lenders crept into positive territory for the first time in nearly three years, according to new data from Fannie Mae. The rise was driven primarily by strong demand expectations for both purchase and refinance mortgages.

“Lenders are signaling strong demand-driven mortgage-market dynamics, with optimism for both their consumer demand and profitability outlooks reaching multi-year highs,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Lender sentiment regarding both recent and expected mortgage demand growth across all loan types was the most upbeat in at least three years. And for the first time in more than two years, lenders who are reporting or expecting growing refinance demand became the majority. With brighter volume expectations, the profit-margin outlook improved markedly, helping the net share of lenders reporting rising profits turn positive for the first time in nearly three years, with consumer demand cited as the top reason for the rosier outlook.”

Duncan warned, however, that the industry still faced challenges.

A lift in lender sentiment from depressed levels is an encouraging sign,” he said. “However, many challenges remain, including the continued shortage of entry-level housing. In addition, it appears that the meaningful easing of lending standards is a thing of the past.”

Highlights of Fannie Mae’s Mortgage Lender Sentiment Survey include:

• For purchase mortgages, the net share of lenders reporting demand growth over the prior three months rose significantly from last quarter, hitting the highest reading for any second quarter since 2016 for GSE-eligible and government loans and since Q2 of 2015 for non-GSE-eligible loans
• For refinances, the net share of lenders reporting demand growth over the prior three months turned positive after being negative for nine consecutive quarters, hitting its highest level since Q4 of 2016
• Lenders’ net profit-margin outlook turned positive for the first time since the third quarter of 2016 and reached the second-most positive reading in survey history