According to a recent Fannie Mae report, mortgage lenders have reason to rejoice this season in anticipation of a strong profit margin. The Fannie Mae report specifically highlights the findings gleaned from its Q3 2020 Mortgage Lender Sentiment Survey.
Survey data for this third quarter showed that nearly half of all lenders (48%) are optimistic about how they will fare this next three-month quarter. In fact, this percentage said they believe that their profits will increase even more than they did in Q3.
Among the survey respondents who weren’t as optimistic were the 37% who reported believing that their profits would stay steady and remain the same this coming quarter. And no survey would be complete without the full picture, which is rounded out by the 15% of lender respondents who admitted to being less than optimistic for this coming quarter, expecting profits to decrease versus increase.
The optimism driving the majority of those lenders expecting strong profits this quarter is based on the fact that consumer demand has stayed strong this past quarter across all loan types (i.e., GSE-eligible, non-GSE-eligible, and government). In fact, it has even reached record highs in many cases, bringing it back on par with this same time last year.
Also reported to have stayed steady and robust was refinance mortgage demand, which was extremely hearty in the third quarter across all loan types. According to lenders, a further tightening of credit standards during the past quarter was experienced, and these tighter credit standards are fully expected to stay that way throughout the next quarter.
Doug Duncan, Fannie Mae Senior Vice President and Chief Economist, commented on the current state of the housing industry, particularly pointing to its impressive recovery, even in the face of the current coronavirus crisis: “This quarter’s MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19. Lenders’ reported purchase mortgage demand for the prior three months across all loan types have returned from sharp drops to the levels seen last year for the same quarter. Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception. For the third consecutive quarter, lenders' profitability outlook has remained a strong positive. Pent-up consumer demand, continued low mortgage rates, and favorable mortgage spreads helped drive lender profitability.”
Duncan further commented on what to expect in the coming months: “This quarter, lenders on net continue to report tightening of credit standards for the prior three months, but expected no further tightening next quarter. Lenders attributed credit tightening to the uncertainty on the economic recovery and labor markets resulting from COVID-19. Although the housing market is showing remarkable strength amid the economic and health crisis, potential longer-term downside risks remain, including labor market weakness, low inventory, and home price uncertainty.”