Lenders are still anticipating a shift in mortgage lending from refinancing to less profitable purchase loans, but it may not be as sudden as had been previously anticipated.
That’s according to Fannie Mae’s quarterly survey of senior mortgage executives, which found listing shortages and affordability issues have dimmed the immediate the prospects of a boom in purchase lending, while conditions for refinancing haven’t deteriorated as rapidly as expected.
“Mortgage lenders appear to have adopted a more neutral posture,” said Fannie Mae Deputy Chief Economist Mark Palim in a statement accompanying the release of the survey.
During the third quarter, Palim said, “more lenders than not reported expectations that purchase mortgage demand will continue to grow, though the total share expecting such growth fell substantially compared to the previous quarter.”
Source: Fannie Mae Lender Sentiment Survey, Q3 2021.
While 34 percent of mortgage executives polled in August said they do expect demand for purchase loans to grow over the next three months, that’s down from over 60 percent in the previous survey in May. While demand for purchase loans is seasonal, the “net share” of lenders expecting purchase demand to grow hit 14 percent, the lowest third quarter reading in the last two years.
Among lenders who expect purchase mortgage demand to decrease in the coming months, “high home prices and a limited supply of homes for sale were the primary reasons given,” Palim said. That jibes with sentiments expressed by would-be homebuyers in Fannie Mae’s latest National Housing Survey, which found 63 percent of consumers think it’s a “bad time to buy a home.”
In the mean time, demand for refinancing has stayed stronger than many expected. Interest rates have largely staying in neutral as the Federal Reserve holds off on tapering its support for the economy until there’s more certainty that the recovery from the pandemic is on solid ground.
Although most mortgage executives still expect demand for refinancing will wane, their outlook for future refi demand was more optimistic than when they were last surveyed in May.
Other highlights from the survey:
- Lender sentiment toward the U.S. economy turned “significantly more negative” compared to the second quarter, although a majority of lenders continued to believe that the economy is “on the right track.”
- The net share of lenders reporting easing credit standards over the prior three months ticked up for loans eligible for purchase or guarantee by Fannie Mae and Freddie Mac, but down for non-eligible loans
- 46 percent of mortgage lenders said they expect profit margins will decrease in the next three months, an improvement from 69 percent in the prior quarter.
- Among lenders who foresee increased profitability, Fannie and Freddie’s pricing and policies were the top reason cited
Fannie and Freddie’s federal regulator recently eliminated a 50-basis point refinancing fee instituted last year to help the mortgage giants cover anticipated pandemic losses, and a smaller, 10-basis point guarantee fee is set to expire on Oct. 1.
“Lenders continue to overwhelmingly cite increased competition as their primary concern regarding future profitability, [but] the share citing personnel costs for their diminished profit margin outlook increased significantly, suggesting that mortgage lenders’ ability to efficiently manage their workforces will be critical to their bottom lines as competitive pressures remain intense,” Palim said.
