Most lenders believe profits will rise in second quarter: Fannie Mae

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Even with their businesses being affected by the coronavirus, more than half of mortgage lenders surveyed said their profits will increase this quarter, according to Fannie Mae.

The second-quarter survey found that 52% of the respondents expected higher profits than those earned in the first quarter, with another 24% saying they would be at the same level. This compares with 51% and 44%, respectively, in the first quarter survey and 41% and 47% for the second quarter of 2019.

However, on a quarter-to-quarter basis, the share of lenders expecting diminished profitability increased significantly, to 23% from 4%. In the year-ago survey, it was 12%.

Increased consumer demand was cited by 55% of respondents as a reason why they expected profits to rise. (Respondents were able to select multiple reasons.) On the other hand, competition was named as the top reason for lower profits by 41%.

But both camps cited the same additional reason for their outlook: government-sponsored enterprise pricing and policies.

Meanwhile, higher servicing costs — most likely because of dealing with pandemic-related forbearances — hit a survey-high as a reason cited for lower profits, but it was just 15%.

Mortgage lenders purchase loan demand sentiment decreased across all three product types — GSE, non-GSE eligible and government — for both the past three months and the next three.

For the non-GSE products, the net difference between those are optimistic and those that said purchase demand did/will decline was at an all-time low, Fannie Mae noted.

Only for GSE mortgages did more lenders feel there would be a gain in purchase movement, 39%, versus 35% that believed there would be a drop.

The survey was conducted between May 5 and May 18. However, the Mortgage Bankers Association's mortgage application survey for the week of May 8 was the fourth in a row with higher purchase activity. So while it might have appeared lenders had cause for optimism, at the time of the survey, many still might have had a darker view of the coronavirus' effect on their business.

"Lenders attributed the purchase mortgage demand decline to COVID-19-related factors, including home price uncertainty, higher unemployment, policy changes, and lower inventory," Fannie Mae Chief Economist Doug Duncan said in a press release. "There are, however, encouraging signs."

"For the agency lending market, the purchase demand outlook remains positive on net and is well above the fourth quarter of 2018 reading, a period of accelerated declines. If borrowers perceive the bottom of the economic downturn as having passed, there could be a pickup in purchase demand to take advantage of continued low mortgage rates.

"Lenders' profitability outlook remains positive, likely because of stable refinance demand, lender capacity constraints, and still-wide mortgage spreads. Nevertheless, challenges remain as the uncertainty around COVID-19 persists, in particular for mortgage servicing," Duncan said.

Over the next three months, 58% of respondents expected GSE refinance loan demand to increase, while 12% forecast a decrease.

But for other loan types, the gap in expected refi demand between the positive and negative was much closer. For non-GSE mortgages, 38% expected a demand gain compared with 31% looking for a drop, while for government loans, it was 39% and 21%, respectively.

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Earnings Refinance Purchase Coronavirus Fannie Mae GSEs MSR Servicing