Skip to main content
Press Release

Mortgage Lenders Approach 2021 with Cautious Profit Margin Outlook

December 9, 2020
Lenders Continue to Report Strong Levels of Purchase and Refinance Mortgage Demand

WASHINGTON, DC – Mortgage lenders' profitability outlook for the next three months declined from last quarter, with a greater share of lenders now expecting profit margins to decrease, according to Fannie Mae's Q4 2020 Mortgage Lender Sentiment Survey®. According to the fourth quarter survey, only 19% of lenders believe profit margins will increase compared to 48% in the prior quarter, while 33% believe profits will remain the same and 48% believe profits will decrease. These results reflect a dampening of aggregate enthusiasm expressed over the prior six quarters, in which lenders indicated increasingly optimistic profitability expectations.

Reported consumer demand remained strong in the fourth quarter across all loan types, and in many cases remained near or recorded survey highs. Reported purchase mortgage demand over the past three months 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.

"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," said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. "The net share of lenders reporting purchase demand growth for the past three months reached a new survey high for GSE-eligible loans. For refinance mortgages, although the net share of lenders reporting demand growth for the prior three months dipped slightly from last quarter's high across all loan types, it has remained at a historically high level. 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."

Survey Highlights and Notes

Mortgage spreads compress to pre-pandemic levels but remain above long-term average

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.

Consumer demand remains generally strong for both purchase and refinance mortgages

For purchase mortgages, the net share of lenders reporting demand growth over the past three months rose across GSE-eligible and government loans, reaching a new survey high for GSE-eligible loans and the highest fourth quarter reading for government loans. Looking ahead to the next three months, demand expectations fell from last quarter, but GSE-eligible and government loan expectations reached the highest readings for any fourth quarter in the survey’s history (since 2014).

For refinance mortgages, the net share of lenders reporting refinance demand growth over the prior three months dipped slightly across all loan types from prior quarter. Refinance demand growth expectations, on net, for the next three months fell significantly from last quarter across all loan types but remain similar to the levels seen in the Q4 2019 survey.

Credit standards have tightened but are expected to remain largely unchanged over next three months

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.

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 fourth quarter 2020 Mortgage Lender Sentiment Survey was conducted between October 27, 2020 and November 8, 2020 by PSB in coordination with Fannie Mae. For detailed findings from the fourth quarter 2020 survey, as well as survey questionnaires and other supporting documents, please visit the Fannie Mae Mortgage Lender Sentiment Survey page on Also available on the site are special topic analyses, which focus on findings and analyses of important industry topics.

About Fannie Mae
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: | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

Media Contact
Matthew Classick

Fannie Mae Newsroom

Photo of Fannie Mae

Fannie Mae Resource Center

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) Group 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, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.