Mortgage lenders are becoming increasingly optimistic about the economy, but rising interest rates and housing affordability issues could impact profit margins, according to Fannie Mae’s first quarter 2017 Mortgage Lender Sentiment Survey.
“This quarter, lenders’ optimism toward the overall economy and home price appreciation hit survey highs, mirroring the consumer confidence seen in our February Home Price Sentiment Index,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a news release about the survey.
“However, lenders’ profit margin outlook remains significantly less positive than this time last year and two years ago,” he added in the release. “Lenders cite competition from other lenders and a market shift from refinance to purchase — both of which reached survey highs — as the top reasons for the weak profit margin outlook. With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market.”
The share of lenders who think that the economy is on the right track reached its highest level since the survey’s inception in the first quarter of 2014, according to the release. At the same time, the net share of lenders expecting increased purchase mortgage demand over the next three months for conventional mortgages fell to the lowest level recorded in any first quarter in the survey’s history, the release stated.
Other highlights of the survey include:
• On net, mortgage lenders’ outlook for profit margins rose slightly in the first quarter compared to the previous quarter but remains significantly lower than this time last year.
• Purchase mortgage demand growth over the prior three months has steadily declined for all loan types when compared with the first quarters of 2016 and 2015, reaching the lowest reading for any first quarter since 2014. For refinance mortgages, the net share of lenders reporting rising demand over the prior three months fell to the lowest level since the first quarter of 2014.
• Lenders continued to report modest net easing of credit standards across all loan types for the prior three months and expect modest easing of credit standards over the next three months.
• Lenders’ profit margin outlook rose slightly from a three-year low in the fourth quarter of 2016 but remains significantly less positive than the first quarters of 2016 and 2015.
The Fannie Mae first quarter survey of senior executives of lending institutions was conducted between Feb. 1-Feb. 13 by Penn Schoen Berland in coordination with Fannie Mae.
To learn more about the survey results, click here.
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