51% of Lenders Expect Profits to Increase

Fannie Mae’s Q1 2020 Mortgage Lender Sentiment Survey found that 51% of lenders believe profit margins will increase compared to the prior quarter, while 44% said profits will remain the same. 

Just 4% of lenders said profits will decline. 

The report states that increased optimism supplements prior quarter results from Fannie Mae revealing strong lender expectations of profitability. Additionally, the strong demand for both purchase and refinance mortgages drive lenders’ expectations of growing profitability, with efficiency cited by lenders as the second-most common reason for the optimistic outlook. 

"Lenders' expectations of consumer demand for purchase and refinance mortgages hit survey highs this quarter, with many lenders pointing to favorable interest rates as the engine driving the demand,” said Fannie Mae SVP and Chief Economist Doug Duncan. “The first quarter survey data, which were collected during the first two weeks of February, do not reflect the potential impact of the decline in the 10-year Treasury rate seen in recent weeks. Mortgage spreads have since widened. Given capacity constraints and continued interest rate volatility, we expect mortgage rates to continue to decline and spreads to continue to be wider throughout 2020."

Duncan continued by saying past data from 2012 and 2016 that mortgage spreads generally take a “few months to compress.” 

"We anticipate similar rate dynamics this time, depending on the path of the underlying Treasury rate,” Duncan said. “Although uncertainty around coronavirus may have a dampening effect on housing market sentiment, for now, we expect the continued low-interest-rate environment will help bolster mortgage volume, particularly refinances, as well as lender profitability, consistent with lenders' expectations."

Weekly mortgage applications rose 55.4% for the week ending March 6 and the Mortgage Bankers Association (MBA) is now forecasting mortgage originations to come in around $2.61 trillion in 2020. 

The expected volume of forecast origination is a 20.3% rise from 2019’s $2.17 trillion. The MBA reports that refinance originations are expected to double earlier projections—going from 36.7% to $1.23 trillion. Purchase originations are now forecasted to rise by 8.3% to $1.38 trillion. 

The refinance index rose 79% from the prior week to its highest level since April 2009. It is also 479% higher than the same week in 2019. The purchases index increased just 6% from the previous week.