Lenders continue to be pessimistic about
their profit outlook as 2018 draws to an end.
Fannie Mae said its fourth quarter 2018 Mortgage Lender Sentiment Survey
found the profit outlook reported by respondents at an all-time survey
low. This was true whether they were
talking about purchase or refinance mortgages or about GSE-eligible,
non-GSE-eligible, or government loans. It was the ninth consecutive quarter
that lender outlook has declined.
Smaller slices of a shrinking pie sums up
the reasons given by lenders for their lowering outlook, especially for
refinancing. When asked whether refinancing demand had increased over the past
three months for any loan type, or if they expected it would over the next
three months, positive answers did not break 5 percent.
Responses to the same questions about purchase
mortgage demand were a little more positive, but across all loan types the net share of lenders reporting demand growth over the
prior three months reached the lowest reading for any fourth quarter since the
survey’s inception in 2014. Responses
about growth expectations for the next three months reached was the lowest for
all loan types in the entire survey history.
“Stressful conditions continue to hang over
the mortgage industry,” Doug Duncan, senior vice president and chief economist
at Fannie Mae said. “Lenders are
reporting the lowest purchase mortgage demand expectations across all loans
types and the worst refinance demand expectations for GSE-eligible loans in the
survey’s five-year history. Rising mortgage rates and lean inventory amid solid
home price appreciation have discouraged both first-time and trade-up
homebuyers. However, mortgage rates have shown signs of stabilization, and
annual home price gains have slowed from the red-hot pace seen earlier this
year. While 2018 is likely to end up a disappointing year for the housing and
mortgage industries, continued strength in demographics and the labor market
offers hope that conditions should stabilize and may even improve next year.”
While only a sliver (11 percent) of
respondents thought their profit margins would increase over the next quarter,
those who did overwhelmingly (65 percent) said it would be because of improved
use of technology. Trailing far behind was
savings through staff reductions and increased demand, better pricing from
non-GSE investors, and less competition were each mentioned by about one-fifth
Of the 49 percent of lenders who
said they expected profits to fall, competition from other lenders was the top
reason cited for the eighth consecutive quarter, mentioned by 74 percent of
respondents. Thirty-eight percent named falling demand while staffing costs,
the shift from refinancing to purchase mortgages, and GSE policies and pricing all
were cited as contributing to the negative outlook.
The Mortgage Lender Sentiment Survey
by Fannie Mae polls senior executives of its lending institution customers on a
quarterly basis to assess their views and outlook across varied dimensions of
the mortgage market. Over 200 lending
institutions participated in the fourth quarter survey, 76 mortgage banks, 88
depository institutions, and 38 credit unions.
The survey was conducted between October 31, 2018 and November 12, 2018
by PSB in coordination with Fannie Mae.