Fannie Mae’s
Q4 Mortgage Lender Sentiment Survey (MLSS) found lenders lowering their
expectations for profits over the next three months
. Only 19 percent of those
responding to the survey think their profit margins will increase, one-third
expect no change while 48 percent are looking for a decline. In the third
quarter survey 48 percent were expecting their profits to grow. Fannie Mae says
this is a change from the prior six quarters in which lenders indicated
increasingly optimistic profitability expectations.

 

 




Lenders reported that consumer demand remained strong in the fourth quarter for
all loan types. Demand for purchase mortgages set a new survey high for
GSE-eligible loans and a new fourth-quarter survey high for government loans.
Looking ahead, purchase mortgage demand expectations fell compared to the prior
quarter but reached new highs for any fourth quarter in the survey’s history.
For refinances, lenders reported that consumer demand fell on both a
looking-back and looking-ahead basis across all loan types but generally
remains strong.

 

blank

 

Fannie Mae
Senior Vice President and Chief Economist Doug Duncan said, “Consistent with
key industry indicators, the fourth quarter MLSS results support the strength
of the mortgage industry we’ve seen in 2020, despite the pandemic.
We currently
expect loan origination volume to total $4.1 trillion in 2020, the highest on
record since 2003.”

“However, moving into 2021, lender sentiment paints a more cautious picture,
aligning neatly with our recently reported consumer-side sentiment expectations,
which appear to have plateaued, and supporting our forecast for a more modest
pace of housing growth,” Duncan continued. “Refinance demand growth
expectations for the next three months fell significantly from last quarter
across all loan types. Additionally, lenders’ profitability outlook has
weakened. The resurgence of COVID-19 cases and uncertainty around the economic
recovery path pose risks to the pace of housing growth. Pending sales and
purchase mortgage applications have recently pulled back from highs as pent-up
demand from the spring has receded.
Tight inventories, along with higher home
prices, will likely continue to restrain sales, and the recent compression of
the primary/secondary mortgage spread appears to confirm mortgage lenders’
lower profitability expectations.”

After peaking in April, mortgage spreads have narrowed steadily. In November,
as the 10-year Treasury increased, the average primary mortgage spread (FRM 30
contract rate versus 10-year Treasury) came in at 190 basis points, returning
to pre-pandemic levels. However, mortgage spreads remain above the long-run
average of approximately 170 basis points.

Lenders on net continued to report that credit standards tightened for the
prior three months, though significantly less so compared to last quarter. Most
lenders expect credit standards to stay about the same for the next three
months.

By Jann Swanson , dated 2020-12-14 12:25:10

Source link

Courtesy of Mortgage News Daily

Leave a Reply