Lenders' Profit Margin Outlook, Mortgage Demand Expectations Sink to Survey Lows

Fewer Lenders Now Say They Are Easing Credit Standards Despite Competitive Pressure

Katie Penote

202-752-2261

WASHINGTON, DC – Mortgage lenders have reported a net negative profit margin outlook for the sixth consecutive quarter, matching the all-time low reading from Q4 2016, according to Fannie Mae’s Q1 2018 Mortgage Lender Sentiment Survey^®. Those who expect a lower profit margin continued to point to "competition from other lenders" as the primary reason, which set another new survey high for the fifth consecutive quarter, while "market trend changes" were cited as the next biggest reason for the first time in three quarters.

Compounding their profit margin concerns, more lenders also have a negative view of consumer demand for purchase and refinance mortgages. The net share of lenders who reported growth in purchase demand over the prior three months was negative for the first time in four years, falling to the lowest reading since Q1 2014. Those who had positive demand expectations over the next three months declined to the lowest first-quarter reading since the survey began. Lenders also continued to report a downbeat outlook with regard to refinance demand over the prior three months and next three months.

"Lenders have faced an increasingly difficult market environment, as they report the most sluggish refinance demand expectations in more than a year, the most anemic purchase demand outlook on record for any first quarter, and the worst profit margin outlook in the survey’s history," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Despite the pressures to remain competitive and profitable, signs of lender caution appear to be emerging. While more lenders eased lending standards than tightened them, continuing the trend that started more than three years ago, the net share of lenders reporting easing credit standards declined for the first time in five quarters to the lowest level in a year." 

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS:

Purchase mortgage demand

• The net share of lenders reporting demand growth over the prior three months turned negative for the first time since Q1 2014 and reached the lowest reading since Q1 2014.
• The net share of lenders expecting increased demand over the next three months was the lowest for any first quarter in the survey's history. 

Refinance mortgage demand

• On net, more lenders reported declining demand over the prior three months, continuing the trend that started in Q1 2017.
• For the next three months, the net share of lenders expecting demand growth continued to drop, showing the worst outlook since Q4 2016. 

Easing of credit standards

• After rising for four consecutive quarters to reach a survey high in the prior quarter, the net share of lenders reporting easing of credit standards over the prior three months fell across all loan types, approaching the levels recorded a year ago (Q1 2017). 

Profit margin

• Lenders' net profit margin outlook has stayed negative for six consecutive quarters. This quarter, it equals the survey low reached in Q4 2016.
• Those expecting a lower profit margin outlook continued to point to "competition from other lenders" as the primary reason. "Competition from other lenders" set a new survey high for the fifth consecutive quarter across all profit margin drivers as the key reason cited for lenders' lower profit margin outlook.
• In addition, the share of lenders citing "market trend changes (e.g., shift from refinance to purchase)" as a key reason for lower profit margin outlook jumped from last quarter to come in second for the first time since Q2 2017.

The Mortgage Lender Sentiment Survey by Fannie Mae polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. The Fannie Mae first quarter 2018 Mortgage Lender Sentiment Survey was conducted between February 7, 2018 and February 19, 2018 by PSB in coordination with Fannie Mae. For detailed findings from the first quarter 2018 survey, as well as survey questionnaires and other supporting documents, please visit the Fannie Mae Mortgage Lender Sentiment Survey page on fanniemae.com. Also available on the site are special topic analyses, which focus on findings and analyses of important industry topics.