Based on Fannie Mae’s MLSS, 65% of mortgage lenders expect a decrease in profit margins while only 3% are feeling optimistic.

For the fifth consecutive quarter, a plurality of mortgage lenders expect near-term profitability to decrease, according to Fannie Mae’s Q4 2021 Mortgage Lender Sentiment Survey® (MLSS). In fact, according to the survey, 65% of mortgage lenders believe profit margins will decrease in the next three months, up from 46% in the prior quarter, while 31% believe profits will remain the same and 3% believe profits will increase. Competition from other lenders and market trend changes were once again the top reasons cited for the profitability expectations. Additionally, across all loan types, more lenders this quarter reported reduced consumer demand over the previous three months for both purchase and refinance mortgages. Looking ahead, again across all loan types, lenders on net expect purchase mortgage demand to remain largely stable, while refinance demand is expected to decrease substantially. “This quarter’s MLSS results suggest that the housing market may be poised to return to a more ‘normal’ state in the new year, following the boom experienced over the past two years due to historically low mortgage rates and pandemic-related changes in homebuyer behavior,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Mortgage lenders’ profitability outlook has significantly weakened over the past several quarters from its early pandemic run-up. However, net loan production income levels, as reported by the Mortgage Bankers Association, and the width of the current primary-secondary spread (an indicator of potential profitability) allow us to level-set. With both still slightly above pre-pandemic levels, we expect lenders to continue investing in capacity efficiency and process streamlining to maintain profitability despite the thinner-margin environment.”

Source: Fannie Mae