Mortgage Lender Sentiment Survey

Mortgage Lenders' Demand Expectations for Purchase and Refinance Mortgages Hit New Survey Highs as Mortgage Rates Move Lower

June 11, 2020
Lenders' Profit Margin Outlook Falls Slightly but Remains Positive as Credit Standards Tighten

This quarter, 52% of lenders believe profit margins will increase compared to the prior quarter, while 24% believe profits will remain the same and 23% believe profits will decrease. The increased optimism supplements prior quarter MLSS results revealing already-strong lender expectations of profitability. The survey of senior mortgage executives was conducted between May 5, 2020 and May 18, 2020. 

Continuing strong consumer demand for refinance mortgages, in particular, outweighed a reported decline in purchase mortgage demand and drove lenders' expectations of increased profitability, with GSE pricing and policies cited by lenders as the second most common reason for the optimistic outlook. Interestingly, for the first time in survey history, more lenders responded that they believe the U.S. economy is on the wrong track, rather than on the right track. After years of remaining largely unchanged, this quarter the majority of lenders reported tightening credit standards across all loan types. 

"This quarter's results reflect the impact of COVID-19 on all fronts," said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. "Lenders' reported purchase mortgage demand for the prior three months and expectations for the next three months declined significantly from last quarter across all loan types. Demand for non-GSE eligible loans showed a sharper drop, reaching the lowest reading since survey inception, indicating a shift toward the GSE-eligible lending market. Lenders attributed the purchase mortgage demand decline to COVID-19-related factors, including home price uncertainty, higher unemployment, policy changes, and lower inventory. Lenders pointed to the same reasons for credit tightening."

"There are, however, encouraging signs," continued Duncan. "For the agency lending market, the purchase demand outlook remains positive on net and is well above the Q4 2018 reading, a period of accelerated declines. If borrowers perceive the bottom of the economic downturn as having passed, there could be a pickup in purchase demand to take advantage of continued low mortgage rates. Additionally, this quarter, refinance demand expectations held relatively stable, demonstrating continued strength. Lenders' profitability outlook remains positive, likely because of stable refinance demand, lender capacity constraints, and still-wide mortgage spreads. Nevertheless, challenges remain as the uncertainty around COVID-19 persists, in particular for mortgage servicing."

Purchase and Refinance Demand Expectations

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS:

Wide Mortgage Spreads Persist and Continue to Point to Positive Profitability Outlooks

Mortgage spreads remain elevated, consistent with mortgage lenders' profitability outlook. The average primary mortgage spreads (FRM 30 contract rate versus 10-year Treasury) came in at 256 basis points in May, above the long-run average of 168 basis points.

Purchase Mortgage Demand Fall Significantly; Refinance Mortgage Demand Holds Stable

For purchase mortgages, the net share of lenders reporting demand growth for both the prior three months and the next three months fell significantly from last quarter across all loan types (GSE-eligible, non-GSE-eligible, and government). For non-GSE-eligible mortgages, the net share reporting demand growth for both the prior three months and the next three months reached survey lows.

For refinance mortgages, the net share of lenders reporting demand growth over the prior three months remained strong, and reached a survey high for GSE-eligible loans. Demand growth expectations on net for the next three months fell from last quarter but remained high across all loan types.

Credit Standards Tightened

After years of stability, this quarter, the majority of lenders reported tightening credit standards. Across all loan types, the net share of lenders reporting easing credit standards for both the prior three months and the next three months significantly decreased, reaching survey lows.

Mortgage Lender Sentiment Survey Archive
Click here for an archived list of Fannie Mae's Mortgage Lender Sentiment Survey results.