Mortgage Lenders’ Biggest Fear: Other Mortgage Lenders

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Mortgage lenders continue to see a negative profit
outlook
for the first quarter of the New Year, the fifth consecutive quarter
they have done so.  Thirty-eight percent
of respondents to Fannie Mae’s Fourth Quarter Mortgage Lender Sentiment Survey® expect their profits to
decline over the next three months while 46 percent think it will remain
essentially the same. While institutions of all sizes and types generally
reported an expected net decrease in profit margin, larger institutions were
the most likely to do so.

On net,
lenders said they view competition from other lenders as their biggest hurdle to
profitability. This sentiment, which has driven profit concerns for five
consecutive quarters, reached its fourth straight survey high with 75 percent
of those with a negative outlook naming this as a reason. Among those expecting
profits to improve, increased operating efficiency was cited most often.

Fannie Mae’s
survey was conducted with representatives of 196 lending institutions including
74 mortgage banks, 77 depository institutions, and 37 credit unions.  Fifty-five institutions were classified as
mid-sized, with assets between $248.3 million and $1.01 billion; 72 were larger
and 69 were smaller. Questions about loans were asked across three loan types;
GSE eligible, GSE non-eligible, and government loans.

More lenders
reported seeing declining demand for refinancing over the previous three months.  This continues a trend that started in the
first quarter of 2017. The net share of lenders who expect to see refinancing
demand grow in the first quarter of 2018 fell to the lowest reading in a year
across all three loan types.

Demand for
purchase loans was also lower for all loan types compared to the previous
quarter and was the lowest for any fourth quarter over the past three years.  The net share of lenders who expect an
increase in purchase mortgage demand over the next three months was about the
same as it has been for recent fourth quarters.

 “Key trends have persisted throughout this
year,” said Doug Duncan, senior vice president and chief economist at Fannie
Mae. “Lenders who see declining profits outweighed those noting improvements in
the bottom line for the fifth consecutive quarter. Three-fourths of those
seeing deteriorating profits cite competition as the most important reason – a
survey high
– compared with only about one-third two years ago. This is not
surprising given that refinance volume continues to shrink. More lenders
reported a pullback in refinance demand from the prior quarter than those who
saw an increase, continuing the trend that started at the beginning of the
year. This finding is consistent with our forecast for a steady drop in
refinance originations this year. With the outlook calling for rising interest
rates and continued tight housing inventory constraining home sales, increased
competition will likely continue to drive lenders’ mortgage business
strategies.”

Credit standards continue to ease,
although modestly. The net share of lenders reporting such easing increased for
fourth consecutive quarter, setting new survey highs for the last two.  Even if at record levels, the net positive
responses remain low, ranging from 18 percent for government loans to 25
percent for GSE-eligible ones. Expectations of credit easing over the next
three months declined on net for GSE Eligible loans and did not exceed 10
percent for any loan type.

On net, lenders continue reporting
expectations to grow GSE and Ginnie Mae shares over the next 12 months.  They also plan to reduce portfolio retention
and whole loan sales shares.

Slightly more lenders reported
expectations to decrease rather than increase the share of MSR sold and the
share of MSR retained and serviced in-house than in recent quarters.  The majority also continued to report
expectations to maintain their MSR execution strategy.

Fannie Mae’s fourth quarter 2017
Mortgage Lender Sentiment Survey was conducted among senior executives of its
lending institution customers between November 1, 2017 and November 14, 2017.  



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