For the third consecutive quarter, an increased share of mortgage lenders expect profit margins to retreat further from last year’s highs, according to Fannie Mae’s (OTCQB: FNMA) Q2 2021 Mortgage Lender Sentiment Survey (MLSS).
According to the second quarter survey, 69% of lenders believe profit margins will decrease in the three months ahead compared to 52% in the prior quarter, while 19% believe profits will remain the same and 11% believe profits will increase.
Looking at consumer demand over the prior three months, across all loan types, more lenders reported increased demand for purchase mortgages but significantly reduced refinance mortgage demand.
“Despite elevated optimism toward the U.S. economy, lenders show a cautious outlook for their mortgage business,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “This quarter, the largest net percentage of lenders in the survey’s seven-year history are expecting a decrease in their profit margin outlook. With the shift from refinance to purchase business, some lenders commented that purchase transactions are harder to complete and have lower margins.”
“Recent economic indicators, however, paint a somewhat more positive picture,” continued Duncan. “Though the primary-secondary mortgage spread has continued to narrow, it remains wider than the level seen pre-pandemic, suggesting that lenders are still making profits, though not as much as they did in 2020.”
Fannie Mae’s June National Housing Survey released this week showed that consumer demand remains strong since ‘home purchase on next move’ is at a survey high, despite the challenges of accelerated home price appreciation and insufficient supply, Duncan said.