Rising interest rates have turned mortgage lenders' post-election outlook on profit margins bearish, according to Fannie Mae.
Just under half of the respondents, 46%, expected margins to decrease, representing the worst outlook in three years, Fannie found in its Mortgage Lender Sentiment Survey for the fourth quarter. Comparatively, 39% expected profit margins to remain about the same, while 15% expected them to increase.
Fannie noted that this was a statistically significant change from the third quarter when a 55% majority of lenders expected profit margins to hold steady and from the fourth quarter of 2015 when 46% expected them to remain the same and 42% expected them to fall.
The top reason cited for the change was market trends, namely the rise in interest rates following the election. Meanwhile, regulatory compliance, which is historically one of the top reasons cited for a decreased outlook on profit margins, fell to a survey low.
Lenders reported purchase demand growth largely in line with what they reported a year ago, but the share of lenders who expected higher demand over the next three quarters dropped to at or near a survey low. Again, unfavorable mortgage rates were cited by a survey-high share of lenders as the main reason for the depressed outlook.
On the refinance side, the share of lenders reporting higher demand during the fourth quarter rose compared with 2015, but the outlook for demand growth fell to a survey low.
Lenders again suggested that they expect to grow their shares of government-sponsored enterprise loans and Ginnie Mae shares, while reducing the share of mortgage retained on portfolio. Lenders also remained consistent with their outlook from the previous quarter regarding reducing the share of mortgage servicing rights sold or retained in house.
