Mortgage lenders less optimistic about profit growth: Fannie Mae
Mortgage lenders became slightly bearish on their profitability outlook in the fourth quarter, with the competitive landscape and shift to a purchase market cited as the main concerns, according to Fannie Mae.
A 1% net share of lenders expect a decrease in earnings in the Fannie Mae Mortgage Lender Sentiment Survey for the fourth quarter. In the third-quarter survey, the share of lenders expecting an increase was 40% above those predicting a decline. In the fourth quarter of 2018, the net share of those anticipating reduced profitability was 34%.
Of the 168 lenders surveyed in the fourth quarter, 27% said they expected profits to rise, down from a record high 53% in the third quarter. Another 44% said profits would remain the same, up from 35%, while 28% felt their company's income would decline, compared with 13% in the third quarter. For the fourth quarter last year, earnings remaining the same and decreasing both received a 45% response rate.
"Mortgage lenders' profit margin outlook remains steady following gains in the first three quarters of 2019," Doug Duncan, Fannie Mae's chief economist, said in a press release. "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," Duncan said.
For those that expected increased profitability, consumer demand and operational efficiencies were the most cited drivers.
The net share of lenders reporting purchase demand increased for the prior three months across all mortgage types — government-sponsored enterprise eligible, non-GSE eligible and government — was the highest for any fourth quarter since Fannie Mae started this survey in 2014. That outlook held true for the next three months as well.
But when it came to refinancings, the outlook going forward is not as optimistic despite the past three months going to record territories when it came to the highest net share.
The net share for GSE refis in the next three months is a 1% increase in activity, while for non-GSE it is a 4% decrease in originations and for government produces, lenders expect an 11% drop in volume.
However, the most recent Mortgage Bankers Association application survey noted that Federal Housing Administration refi volume was a key driver for the week-over-week increase.