As mortgage rates tick up, lenders are seeing profit margins remaining on solid ground, according to new data from Fannie Mae and Freddie Mac. According to Fannie Mae's Q4 2019 Mortgage Lender Sentiment Survey, 44% of lenders believe profit margins will remain about the same compared to the prior quarter, while 28% believe profits will fall and 27% believe profits will rise.
"Mortgage lenders' profit margin outlook remains steady following gains in the first three quarters of 2019," said Fannie Mae Senior VP and Chief Economist Doug Duncan. "Credit standard trends also continue to hold steady amid the largely unchanged profitability outlook. Lower interest rates, which drove the refinance boom, have been the engine driving mortgage demand growth this year. Lenders' purchase and refinance demand expectations align with our own forecast: With interest rates stabilizing in 2020, we expect a decline in refinance activity and slightly higher purchase activity."
Freddie Mac reports that the average 30-year fixed rate mortgage moved up slightly in the last week to 3.73%, as the GSE notes that with the risk of a recession receded, combined with the very strong job market, it should lead to a slightly higher rate environment.
Meanwhile, Fannie Mae reports that mortgage spreads remain elevated, consistent with continued optimism in mortgage lenders' profitability outlook. The average primary mortgage spreads came in at 189 basis points in November.
Lender profitability outlooks were strengthened in Q4 by strong demand, particularly among purchase mortgages, thought they expect refinance demand to soften amid a more stable interest rate environment. Lenders expect demand to grow in the coming months, across all purchase loan types. However, demand growth expectations on net for the next three months fell significantly from the survey highs of last quarter, but the net share of lenders that expect refinance volumes to increase remains well above shares observed a year ago across all loan products.