Lenders Get Bearish on Profit Margins

Mortgage lenders have reported a net negative profit margin outlook for the eighth consecutive quarter according to Fannie Mae's Q3 2018 Mortgage Lender Sentiment Survey. As mortgage demand erodes further, lenders’ profit outlook this quarter was worse than the outlooks reported last quarter and one year ago.

"Lenders continued their bearish trend this quarter, as they note ongoing anemic refinance activity and the worst purchase mortgage demand for a third quarter in the survey's history," said Doug Duncan, SVP and Chief Economist at Fannie Mae. "The profit outlook remains negative, with those lenders expecting decreased profit margins outweighing those anticipating increases for the eighth consecutive quarter.

According to the Survey, lenders cite competition from other lenders as the primary cause of the continued margin compression. Consumer demand was cited as the second most important reason for the decreased profit margin outlook, a survey high.

Fannie Mae found that less mortgage lenders have been reporting growth across all loan types, including GSE-eligible, non-GSE eligible, and government. Additionally, expectations of growth for the next three months has reached Q3 reading of any Q3 since the survey’s inception five years ago.

"For the first time this year, consumer demand was one of the top two reasons for the downbeat profit outlook, cited by more than one-third of lenders—a record high," Duncan said. "Meanwhile, the pace at which lenders are easing credit standards has slowed. The net shares of lenders reporting easing credit standards for GSE-eligible and government loans are less than half the peak shares reached at the end of last year. This may suggest the realization among lenders that combatting declining affordability by making it easier to obtain mortgages might not be the answer – or simply that there is little room for additional easing going forward."

Additionally, Fannie Mae notes that demand for refinance mortgages remained negative but stable. Despite the decreased mortgage demand and increased competition that lenders have reported, fewer lenders reported easing credit standards in the Q3.

Find the report from Fannie Mae here.