Many American mortgage lenders expect stronger profits in the third quarter of this year, a new survey from Fannie Mae has found.
Fannie Mae’s Q3 2020 Mortgage Lender Sentiment Survey, conducted between Aug. 4 and Aug. 16, polled 207 executives at 186 of its lending institution customers split roughly evenly across institution size.
According to the survey, 48 percent of lenders believe profit margins will increase compared to the prior quarter, building on an already strong profit margin outlook, while 37 percent believe profits will remain the same and 15 percent believe profits will decrease.
Reported consumer demand remained strong in the third quarter across all loan types, and in many cases neared or reached new highs. Lenders reporting purchase mortgage demand growth for both the prior three months and the next three months rose significantly from last quarter across all loan types (i.e., GSE-eligible, non-GSE-eligible and government) and is back on par with the same time last year.
Similarly, according to lenders, refinance mortgage demand remained extremely strong in the third quarter across all loan types on both a look-back and look-forward basis. On net, lenders also reported a further tightening of credit standards over the prior three months and expect them to remain largely the same over the next three months.
“This quarter’s MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement. “Lenders’ reported purchase mortgage demand for the prior three months across all loan types have returned from sharp drops to the levels seen last year for the same quarter. Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception. For the third consecutive quarter, lenders’ profitability outlook has remained a strong positive. Pent-up consumer demand, continued low mortgage rates, and favorable mortgage spreads helped drive lender profitability.”
Reports of credit tightening dovetail with a Mortgage Bankers Association analysis of Ellie Mae data that showed credit availability for conventional mortgages dropped 8.7 percent, driven partly by an 8.9 percent drop in the availability of jumbo mortgages and an 8.6 drop in the availability of conforming loans. At the same time, the availability of FHA loans dropped by only 1.4 percent. Overall credit availability was the lowest it’s been since March 2014, the MBA said.
“Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound,” MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said in a statement. “A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also continued to drive the overall decline in credit availability.”
Fannie Mae said its survey showed lenders do not expect significant tightening in the last quarter of 2020, however. Lenders said they expect demand for refinances to stay strong into the fourth quarter.
