The Mortgage Lender Sentiment Survey revealed that 75% of mortgage lenders expect lower profit margins in the upcoming quarter.

Mortgage lenders are pragmatic about their business prospects over the next quarter, expecting mortgage rates to continue to increase and refinance activity to decline accordingly. Fannie Mae’s Q1 Mortgage Lender Sentiment Survey (MLSS) found 75 percent of the lenders responding expect lower profit margins over the next three months, a 10-point increase from the Q4 2021 survey. Seventeen percent expect no change in profitability while 9 percent are looking for growth. It was the sixth consecutive quarter that the profit outlook was negative, and the net positive of -66 percent was the lowest in the survey’s eight-year history. Lenders cited competition, changes in market trends and in consumer demand as the top reasons for predicting a profit decline. They were also more pessimistic about the overall economy. Fifty-nine percent said it was on the wrong track compared to 29 percent a year earlier. A similar pattern emerged for purchase mortgage demand. The net share of lenders reporting growth over the prior three months reached the lowest reading for any first quarter over the past two years across all loan types. For the next three months, the net share of lenders expecting demand growth climbed significantly from last quarter across all loan types, but still showed the lowest reading for any first quarter in survey history.  "For the sixth consecutive quarter, mortgage lenders expressed bearishness about near-term profit margin expectations amid headwinds from declining refinance activity, slower purchase mortgage demand growth, and narrowing spreads," said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae. "For consumers, rising interest rates, lack of supply, and strong home price appreciation have reduced refinance activity and further constrained home purchase affordability, which, of course, is dampening lenders' expectations of future business activity. Numerous uncertainties, including heightened inflation and the Fed's monetary policy reaction, which must now also account for the inflationary impact of Russia's war on Ukraine, suggest increased market volatility, but the general underlying, upward rate trend aligns with lenders' expectations." 

Source: Mortgage News Daily