Mortgage lenders were braced for high demand even before recent spike

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Companies in the mortgage business were already focused on processing a lot of loans and generating efficiencies before the latest uptick in business hit.

Expectations around purchase and refinance loan demand, as well as for profitability, reached all-time highs in Fannie Mae's Mortgage Lender Sentiment Survey, which was conducted during the first two weeks of February. Between Feb. 21, when the coronavirus scare started affecting the markets, and the morning of March 12, the Dow Jones Industrial Average fell 7,657 points. In turn, the yield on the 10-year broke below 1% for the first time ever for a brief time on March 3, and it has stayed below that mark every day since.

Given the time lag, those responses "do not reflect the potential impact of the decline in the 10-year Treasury rate seen in recent weeks," said Fannie Mae Chief Economist Doug Duncan in a press release. "Mortgage spreads have since widened. Given capacity constraints and continued interest rate volatility, we expect mortgage rates to continue to decline and spreads to continue to be wider throughout 2020."

"Past experience from 2012 and 2016 suggests that mortgage spreads generally take a few months to compress. We anticipate similar rate dynamics this time, depending on the path of the underlying Treasury rate. Although uncertainty around coronavirus may have a dampening effect on housing market sentiment, for now we expect the continued low interest rate environment will help bolster mortgage volume, particularly refinances, as well as lender profitability, consistent with lenders' expectations," Duncan continued.

Already the Mortgage Bankers Association increased its 2020 volume forecast earlier this week, more so for refinancings than purchases.

The net share of lenders that had expected their profits to increase over the next three months was 47%, which represented the difference between the 51% that believed they would make more money and the 4% that thought their profits would decrease. Another 44% said they anticipated their profits would remain the same.

Approximately two-thirds of those looking at increased earnings previously believed those would come from increased demand, while 51% said operational efficiencies (more than one response can be provided). But only 16% said GSE pricing and policies would be a contributing factor.

Even before the market turmoil, refinance demand expectations over the next three months for GSE-eligible and government loans were at survey highs at 69% and 53%, respectively. For conventional non-GSE loans, refi-demand expectations were the second highest ever at 49%.

Meanwhile, purchase demand over the next three months for all three loan types reached all-time highs in the first-quarter survey. At least 78% of respondents expected increases in their GSE purchase volume, while 63% thought that would be the case for conventional non-GSE activity and 68% projected an increase in government program lending.

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Refinance Purchase Earnings Mortgage rates Mortgage rates forecast Fannie Mae Coronavirus
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