Most lenders expect to keep making big money on mortgages

By Housing News

Recent data from the Mortgage Bankers Association revealed that lenders are now making more money per loan than they’ve made in almost seven years.

And a new report from Fannie Mae suggests that most lenders believe they’ll keep making that much money per loan for the foreseeable future.

Fannie Mae this week released its Mortgage Lender Sentiment Survey for the fourth quarter, which asks senior executives at its lending institution customers to assess their views and outlook for the mortgage market.

According to the survey, more than 70% of the surveyed lending executives believe their mortgage profits will either stay at the highs they’re at now or actually increase over the next few months.

The survey results show that 44% of lenders believe their profit margins will remain about the same compared to the prior quarter, while 27% believe profits will rise.

Conversely, 28% of the surveyed companies believe profit margins will fall.

But even if they do, profits could still end up being well above where they’ve been for most of the last few years due to several factors working in lenders’ favor right now.

According to Fannie Mae, “strong consumer demand, particularly among purchase mortgages, continues to buoy lenders’ overall expected profitability, even as they expect refinance demand to soften amid a more stable interest rate environment.”

Per the MBA report, independent mortgage banks and mortgage subsidiaries of chartered banks reaped a profit of $1,924 on each mortgage they originated in the third quarter of 2019.

That’s up from a reported gain per loan of $1,675 in the second quarter and significantly above where it was in the fourth quarter of last year, when lenders were actually losing $200 on each loan.

What a difference a year, and low interest rates, can make.

According to the report, lenders have seen increases in both purchase and refinance mortgage demand, driving the increase in profit margins.

The survey results showed that on purchase mortgages, the net share of lenders reporting growth in demand over the last three months, as well as the net share of lenders that expect more growth in the next three months, remained positive and reached the highest readings for any fourth quarter in the survey’s history.

On refis, the net share of lenders reporting grown in demand over the last three months continued the upward trend that began in Q1 2019 and reached new survey highs (since Q1 2014).

And most expect that trend to continue, even as refis may fall back some next year.

“Mortgage lenders’ profit margin outlook remains steady following gains in the first three quarters of 2019,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.

“Credit standard trends also continue to hold steady amid the largely unchanged profitability outlook. Lower interest rates, which drove the refinance boom, have been the engine driving mortgage demand growth this year,” Duncan continued. “Lenders’ purchase and refinance demand expectations align with our own forecast: With interest rates stabilizing in 2020, we expect a decline in refinance activity and slightly higher purchase activity.”


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