Mortgage Lenders Remain Bearish on Profits Amid Rising Mortgage Rates, Declining Volume

Rhea-AI Summary

A majority of mortgage lenders anticipate a decrease in profitability due to rising mortgage rates and declining refinance activity, as revealed in Fannie Mae's Q1 2022 Mortgage Lender Sentiment Survey. 75% of lenders expect profit margins to drop, up from 65% in the previous quarter. Economic pessimism has also increased, with 59% of lenders believing the economy is on the wrong track. Consumer demand for purchase and refinance mortgages is weakening, leading to a bearish outlook on future business activity.

Positive

• None.

Negative

• 75% of lenders expect profit margins to decrease in the next three months, up from 65%.
• 59% of lenders believe the economy is on the wrong track, a significant increase in pessimism.
• Consumer demand for both purchase and refinance mortgages has declined, reaching the lowest levels in three years.
• Bearish sentiment persists among lenders for the sixth consecutive quarter amid ongoing market pressures.

WASHINGTON, March 10, 2022 /PRNewswire/ -- A majority of mortgage lenders continue to expect near-term profitability to decrease amid rising mortgage rates and declining refinance activity, according to Fannie Mae's (FNMA/OTCQB) Q1 2022 Mortgage Lender Sentiment Survey^® (MLSS). According to the survey, 75% of mortgage lenders believe profit margins will decrease in the next three months, up from 65% in the prior quarter, while 17% believe profits will remain the same and 9% believe profits will increase. Competition from other lenders, market trend changes, and consumer demand were the top reasons cited for the decline in profitability expectations. Mortgage lenders also grew more pessimistic about the larger economy in Q1 2022, with 59% now reporting that the economy is on the wrong track, compared to 29% in Q1 2021.

Compared to last year, across all loan types, more lenders this quarter reported reduced consumer demand over the previous three months for both purchase and refinance mortgages. Looking ahead, again across all loan types, fewer lenders than last quarter expect purchase mortgage demand to grow in the next three months, while the vast majority of lenders continue to expect refinance demand to decrease.

"For the sixth consecutive quarter, mortgage lenders expressed bearishness about near-term profit margin expectations amid headwinds from declining refinance activity, slower purchase mortgage demand growth, and narrowing spreads," said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae. "For consumers, rising interest rates, lack of supply, and strong home price appreciation have reduced refinance activity and further constrained home purchase affordability, which, of course, is dampening lenders' expectations of future business activity. Numerous uncertainties, including heightened inflation and the Fed's monetary policy reaction, which must now also account for the inflationary impact of Russia's war on Ukraine, suggest increased market volatility, but the general underlying, upward rate trend aligns with lenders' expectations."

Survey Highlights and Other Notes

Read the Q1 2022 MLSS research report for additional information and analysis.

Primary-secondary mortgage spread remains elevated

The primary-secondary mortgage spread averaged 127 basis points in Q3 2021, 9 basis points above the 2019 average, though down from the peak of 174 basis points seen in Q3 2020.

Consumer demand expected to remain largely stable for purchase mortgages but decline for refinances

For purchase mortgages, demand growth for the prior three months continued its downward trend. The net share of lenders reporting demand growth over the prior three months reached the lowest reading for any first quarter over the past two years across all loan types. For the next three months, the net share of lenders expecting demand growth climbed significantly from last quarter across all loan types, but still showed the lowest reading for any first quarter in survey history.

For refinance mortgages, the net share of lenders reporting demand growth over the prior three months, as well as the net share expecting demand growth for the next three months, remained similar to last quarter but generally continued its downward trend across all loan types – reaching the lowest readings in three years (since Q1 2019). For government loans, the net share expecting demand growth over the next three months reached a new survey low (since survey inception in Q1 2014).

Lenders expect credit standards to remain largely unchanged

The net share of lenders reporting easing credit standards over the prior three months, as well as the net share expecting easing over the next three months, remained generally flat across the past four quarters.

Consumers continue to report widely divergent homebuying and home-selling conditions

In coordination with PSB, Fannie Mae also surveys consumers monthly as part of its National Housing Survey^®, of which the Home Purchase Sentiment Index^® is derived. In February, consumers continued to report widely divergent views of homebuying and home-selling conditions. Only 29 percent of consumers reported that it was "a good time to buy" a home, while 72 percent believe it's a "good time to sell." More consumers also reported expectations that mortgage rates and home prices will continue to rise in the next 12 months.

About Fannie Mae's Mortgage Lender Sentiment Survey
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 2022 Mortgage Lender Sentiment Survey was conducted between February 1, 2022 and February 14, 2022 by PSB in coordination with Fannie Mae. For detailed findings from the first quarter 2022 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.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit:
fanniemae.com | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

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Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group or survey respondents included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group or survey respondents as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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SOURCE Fannie Mae

FAQ

What does Fannie Mae's Q1 2022 Mortgage Lender Sentiment Survey indicate about profit margins?

The survey indicates that 75% of mortgage lenders expect profit margins to decrease in the next three months, an increase from 65% in the previous quarter.

How has lender sentiment about the economy changed according to the latest survey?

The survey shows that 59% of lenders believe the economy is on the wrong track, up from 29% in Q1 2021.

What trends are observed in consumer demand for mortgages?

The survey highlights a decline in consumer demand for both purchase and refinance mortgages, with lenders reporting the lowest demand growth in three years.

How long has the bearish sentiment among mortgage lenders been recorded?

The bearish sentiment regarding profit margins has been recorded for six consecutive quarters.

What are the main factors causing lenders' concerns in Q1 2022?

Lenders cite rising interest rates, declining refinance activity, and slower purchase mortgage demand growth as key factors affecting their outlook.