News Release

September 11, 2018

Lenders Still Bearish as Reported Mortgage Demand Erodes Further

Matthew Classick

202-752-3662

WASHINGTON, DC – Mortgage lenders reported a net negative profit margin outlook for the eighth consecutive quarter amid the further erosion of purchase mortgage demand, according to Fannie Mae's Q3 2018 Mortgage Lender Sentiment Survey®. On net, lenders' profit outlook this quarter was worse than the outlooks reported last quarter and one year ago, with "competition from other lenders" once again cited by survey participants as the top reason for continued margin compression. For purchase mortgage demand, across all loan types – GSE-eligible, non-GSE eligible, and government – the net shares of lenders reporting growth for the previous three months and expectations of growth for the next three months reached the lowest readings for any third quarter in the survey’s five-year history. Reported demand for refinance mortgages remained negative but stable amid the higher interest rate environment. Finally, in general, fewer lenders reported easing credit standards in the third quarter despite the decreased mortgage demand and increased competition.

"Lenders continued their bearish trend this quarter, as they note ongoing anemic refinance activity and the worst purchase mortgage demand for a third quarter in the survey's history," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The profit outlook remains negative, with those lenders expecting decreased profit margins outweighing those anticipating increases for the eighth consecutive quarter. For the first time this year, consumer demand was one of the top two reasons for the downbeat profit outlook, cited by more than one-third of lenders—a record high. Meanwhile, the pace at which lenders are easing credit standards has slowed. The net shares of lenders reporting easing credit standards for GSE-eligible and government loans are less than half the peak shares reached at the end of last year. This may suggest the realization among lenders that combatting declining affordability by making it easier to obtain mortgages might not be the answer – or simply that there is little room for additional easing going forward."

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS:

Purchase mortgage demand

  • For purchase mortgages, across all loan types (GSE eligible, Non-GSE eligible, and government), the net share of lenders reporting demand growth over the prior three months, as well as the net share reporting growth expectations for the next three months, reached the lowest readings for any third quarter in the survey's history (2014).

Refinance mortgage demand

  • For refinance mortgages, across all loan types (GSE eligible, non-GSE eligible, and government), the net share of lenders reporting refinance demand growth over the prior three month, as well as the net share reporting growth expectations for the next three months, continued to be negative but remained relatively stable from last quarter (Q2 2018).

Easing of credit standards

  • The net shares of lenders reporting easing credit standards for GSE eligible and government loans for both the prior three months and the next three months are less than half the peak shares reached at the end of last year (Q4 2017).

Profit margin

  • Lenders' net profit margin outlook remained negative for the eighth consecutive quarter and is worse than the outlooks seen last quarter (Q2 2018) and one year ago (Q3 2017).
  • "Competition from other lenders" was cited as the top reason for lenders' decreased profit margin outlook for the seventh consecutive quarter.
  • "Consumer demand" was cited as the second most important reason for the decreased profit margin outlook, reaching a survey high.

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 third quarter 2018 Mortgage Lender Sentiment Survey was conducted between August 1, 2018 and August 13, 2018 by PSB in coordination with Fannie Mae. For detailed findings from the third 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.

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.

Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/FannieMae.