Reported Mortgage Demand Falls to Three-Year Low, Fueling Lenders' Negative Profit Margin Outlook

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Jun 12, 2018, 09:00 ET

WASHINGTON, June 12, 2018 /PRNewswire/ -- Mortgage lenders reported a net negative profit margin outlook for the seventh consecutive quarter, as rising home prices and tight housing supply continue to put a squeeze on mortgage demand, according to Fannie Mae's Q2 2018 Mortgage Lender Sentiment Survey^®. When asked about consumer demand for GSE eligible and government loans, the net share of lenders reporting growth in the past three months – as well as the net share reporting growth expectations looking ahead the next three months – dropped to the lowest reading for any second-quarter period within the past three years. Demand for refinance mortgages fared no better amid rising mortgage rates. On net, more lenders reported declining refinance demand over the prior three months, reaching the lowest level since Q2 2014. Additionally, those who expect a pickup in refinance demand in the next three months continued to trend negative on net, remaining near the survey's lowest readings within the past three years.

"Lenders remain bearish this quarter as they continue to face headwinds from rising mortgage rates, tight supply, and strong home price appreciation, which have drastically reduced refinance activity and restrained home purchase affordability," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "These factors have combined to squeeze mortgage origination volumes and have increased competitive pressures. Increased competitiveness will likely persist as a top driver of lenders' mortgage business strategy. We expect this will prompt businesses to turn to cost-cutting as a means of managing their bottom lines, with payroll reduction likely to assume a more prominent role in future belt-tightening efforts."

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS:

Purchase mortgage demand

For GSE eligible and government loans, the net share of lenders reporting demand growth over the prior three months as well the net share reporting growth expectations over the next three months reached the lowest reading for any second quarter over the past three years.
For non-GSE eligible loans, the net share of lenders reporting demand growth over the prior three months hit a two-year high for the same quarter (Q2).

Refinance mortgage demand

For refinance mortgages, on net, more lenders continued reporting declining demand over the prior three months, reaching the lowest level since Q2 2014.
The net share of lenders reporting demand growth expectations for the next three months continued to be negative, but remained relatively stable from last quarter (Q1 2018).

Easing of credit standards

The net share of lenders reporting easing of credit standards over the prior three months as well as the net share of lenders reporting easing for the next three months remained stable overall.
However, the net share reporting easing of credit standards for non-GSE eligible loans appeared to tick up from last quarter.
In particular, the net easing share for non-GSE eligible loans for the next three months reached a survey high.

Profit margin

Lenders' net profit margin outlook has stayed negative for seven consecutive quarters. Though it is less negative than the outlook seen last quarter (Q1 2018), it is worse than the one seen one year ago (Q2 2017).
Since Q1 2017 (for six consecutive quarters), "competition from other lenders" has remained the top reason that lenders cited for their lower profit margin outlook, tying last quarter's survey high.
"Market trend changes" continues to be the next key reason lenders cited for their lower profit margin 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. The Fannie Mae second quarter 2018 Mortgage Lender Sentiment Survey was conducted between May 2, 2018 and May 14, 2018 by PSB in coordination with Fannie Mae. For detailed findings from the second quarter 2018 survey, as well as survey questionnaires and other supporting documents, please visit the Fannie Mae Mortgage Lender Sentiment Survey page on fanniemae.com. Also available on the site are special topic analyses, which focus on findings and analyses of important industry topics.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group or survey respondents included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group or survey respondents as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.

SOURCE Fannie Mae