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Press Release

Mortgage Lenders’ Profitability Outlook Tightens Further Following 2020 Refi Boom

June 10, 2021
Surveyed Lenders Report Uptick in Purchase Mortgage Demand, Downtick in Refinance Demand

WASHINGTON, DC – 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 (FNMA/OTCQB) 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. In fact, for refinance mortgages, the net share of lenders reporting demand growth over the prior three months turned net negative for the first time since the first quarter of 2019 and reached the lowest reading since the fourth quarter of 2018 for GSE-eligible and government loans. Looking ahead, lenders’ expectations for purchase demand growth over the next three months remain relatively strong but are down slightly from last quarter for GSE-eligible and government loans, while refinance demand expectations fell significantly across all loan types.

"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. This is the third quarterly decline from the lender profitability highs of 2020. Those who expected a lower profit margin continued to cite competition from other lenders and market trend changes as the primary reasons. Lenders reported a significant refinance demand decline over the past three months and expect the decline to continue, with their refinance demand growth expectations reaching the lowest level seen since Q4 2018. 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. Purchase mortgage applications have trended slightly lower in recent weeks; however, they remain fairly strong, and higher than the pre-pandemic level, likely because of continued low mortgage rates. Our June National Housing Survey released early 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."

Survey Highlights and Other Notes

Read the Q2 2021 MLSS summary research report for additional information and analysis.

As rates stabilize, mortgage spreads continue to compress

After the impressive 40 basis point run-up of the 10-year Treasury in the first quarter of 2021, peaking at 1.72% in the first week of April, the 10-year has stabilized in the range of 1.55% and 1.65%. The 30-year fixed contract rate has also experienced a similar stabilization, peaking at 3.18% in the first week of April, but now hovering around 3.0%, though it reached as low as 2.94% in mid-May. While both the 10-year Treasury and 30-year fixed contract rate have fallen from their peaks in early April, the contract rate has fallen further than the 10-year. Given this movement, the primary spread compressed further in May, falling 8 basis points to 134 basis points, the lowest level since April 2010, and well below the prior decade's average of approximately 170 basis points.

Consumer demand remains strong for purchase mortgages but weakens considerably for refinance mortgages

For purchase mortgages, the net share of lenders reporting demand growth over the past three months increased from last quarter across all lender types. Looking ahead, lenders’ demand growth expectations over the next three months are slightly down for GSE-eligible and government loans and about even for non-GSE-eligible loans. For refinance mortgages, the net share of lenders reporting demand growth over the prior three months dropped significantly from last quarter across all loan types, turning net negative for the first time since Q1 2019 and reaching the lowest reading since Q4 2018 for GSE-eligible and government loans. Refinance demand growth expectations on net for the next three months also fell significantly across loan types, reaching the lowest levels seen since Q4 2018.

Lenders ease credit slightly compared to prior year

The net share of lenders reporting easing credit standards over the prior three months has gradually climbed since Q2 2020 across all loan types. This quarter, the net-easing share for GSE-eligible loans remained relatively flat from last quarter. For the next three months, the net share of lenders expecting easing ticked up slightly from last quarter for non-GSE-eligible loans but remained relatively steady for GSE-eligible and government loans.

Gap widening in consumer sentiment toward 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 May, while the overall index remained relatively flat, with consumers even expressing increased positivity about job security and household income, their perceptions of homebuying conditions compared to home-selling conditions continued to diverge. Only 35 percent of consumers reported that it was "a good time to buy" a home, while 67 percent believe it's a "good time to sell." Not surprisingly, the top two reasons cited by consumers for their negativity toward current homebuying conditions were high home prices and a lack of supply.

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 second quarter 2021 Mortgage Lender Sentiment Survey was conducted between May 4, 2021 and May 17, 2021 by PSB in coordination with Fannie Mae. For detailed findings from the second quarter 2021 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

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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.