Over half of lenders surveyed by Fannie Mae believe profit margins will decrease in the next quarter.

More and more lenders are projecting a downturn in profit margins as the industry shifts from a refi market to a purchase market. The share of lenders that believe profit margins will decrease in the next three months increased from 52% from the first quarter to 69% in the second quarter, according to Fannie Mae’s latest Mortgage Lender Sentiment Survey. Meanwhile, 19% expect profits to remain the same, and 11% predict profits will increase. “Despite elevated optimism toward the US economy, lenders show a cautious outlook for their mortgage business,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “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.”  Lenders also reported a significantly reduced refinance demand over the past quarter and expect the decline to continue, with their refinance demand growth expectations reaching the lowest level seen since Q4 2018 for GSE-eligible and government loans. The net share of lenders reporting purchase mortgage demand growth over the past three months increased from last quarter across all lender types. Duncan noted that those who expected a lower profit margin continued to cite competition from other lenders and market trend changes as the primary reasons. “With the shift from refinance to purchase business, some lenders commented that purchase transactions are harder to complete and have lower margins,” he said.

Source: Mortgage Professional America