According to Fannie Mae's Q2 2020 Mortgage Lender Sentiment Survey, the profit margin outlook for mortgage lenders for the upcoming three months dipped a bit. However, the outlook remains overwhelmingly positive as a result of a healthy refinance demand.
Statistics taken from the survey data reveal that within this quarter, more than half of lenders (52%) are hopeful and expect profit margins will increase moving forward. Roughly a quarter of lenders polled this quarter (24%) are less optimistic, revealing that they think profits will be unchanged. The remaining of those surveyed (roughly 23%) of lenders leaning toward the more pessimistic viewpoint that profits will actually decrease this next quarter.
As the majority are filled with optimism, many experts contribute this brighter outlook to prior quarter MLSS results that likewise showed positive lender expectations of upcoming profits in the industry.
Also supporting this optimism were the key points that consumer demand for refinancing mortgages stayed healthy and steady, so much so, in fact, that this positive reporting trumped the sentiment that accompanied the dip in purchase mortgage demand. GSE pricing and policies—in particular—were listed as a close second in the reasonings why lenders were leaning toward hopeful optimism for the future.
Fannie Mae SVP and Chief Economist Doug Duncan weighed in on the survey’s findings, particularly in relation to how COVID-19 affected the outcome: "This quarter's results reflect the impact of COVID-19 on all fronts. Lenders' reported purchase mortgage demand for the prior three months and expectations for the next three months declined significantly from last quarter across all loan types.”
He added: “Demand for non-GSE eligible loans showed a sharper drop, reaching the lowest reading since survey inception, indicating a shift toward the GSE-eligible lending market. Lenders attributed the purchase mortgage demand decline to COVID-19-related factors, including home price uncertainty, higher unemployment, policy changes, and lower inventory. Lenders pointed to the same reasons for credit tightening.”
Duncan then pointed to optimism himself: ”There are, however, encouraging signs. For the agency lending market, the purchase demand outlook remains positive on net and is well above the Q4 2018 reading, a period of accelerated declines. If borrowers perceive the bottom of the economic downturn as having passed, there could be a pickup in purchase demand to take advantage of continued low mortgage rates. Additionally, this quarter, refinance demand expectations held relatively stable, demonstrating continued strength. Lenders' profitability outlook remains positive, likely because of stable refinance demand, lender capacity constraints, and still-wide mortgage spreads. Nevertheless, challenges remain as the uncertainty around COVID-19 persists, in particular for mortgage servicing."