Inflation, interest rates and military conflicts weigh on lenders

Continuing a quarterly survey of mortgage executives that began in 2014, Fannie Mae released its latest Mortgage Lender Opinion Survey for the first quarter of 2022, seeing that lenders are becoming increasingly bearish due to current market conditions.

The survey, which was conducted during the first two weeks of February among 200 senior executives, aims to gauge their views and perspectives on various dimensions of the mortgage market. The 200 leaders represent 188 institutions of which 83 were non-custodial mortgage banks, 62 depositary institutions and 40 credit unions.

Among respondents, 75% of mortgage lenders believe profit margins will decline over the next three months (up 10% from Q4 2021), 17% believe profits will remain the same, while 9% believe profits will increase. Respondents cited strong competition from other lenders, changing market trends and consumer demand as the main reasons for their responses on lower profitability expectations. This is the sixth quarter in which lenders’ profitability outlook is declining. This is also a new survey low.

Mortgage lenders also became more pessimistic about the economy as a whole in the first quarter, with 59% saying they thought the economy was on the wrong track, down from 29% in the first quarter of 2021. .

Across all loan types, more lenders reported lower consumer demand from the prior quarter for purchase and refi requests. Going forward, the vast majority of lenders continue to expect demand for refi mortgages to decline.

“For the sixth consecutive quarter, mortgage lenders expressed pessimism about near-term profit margin expectations amid headwinds from declining refinancing activity, slowing growth in mortgage demand from buying and narrowing spreads,” said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae. “For consumers, rising interest rates, lack of supply and sharp appreciation in home prices have reduced refinancing activity and further limited the affordability of buying a home, which , of course, dampens lenders’ expectations of future business activity Many uncertainties, including increased inflation and the Fed’s monetary policy response, which must now also take into account the inflationary impact of Russia’s war on Ukraine, suggests increased market volatility, but the general underlying trend of higher rates is in line with lenders’ expectations.

Other high-level takeaways from the report include:

The primary-secondary mortgage gap remains high

“The primary-secondary mortgage spread averaged 127 basis points in the third quarter of 2021, 9 basis points above the 2019 average, although down from the peak of 174 basis points seen in third quarter of 2020.”

Consumer demand expected to remain broadly flat for mortgage purchases, but decline for refinances

“For purchase mortgages, demand growth over the previous three months continued its downward trend. The net share of lenders reporting demand growth over the previous three months hit the lowest figure for any first quarter in the past two years for any type of loan. Over the next three months, the net share of lenders expecting demand growth increased significantly from last quarter for all loan types, but still posted the lowest value of all. first quarters of the survey’s history.

“For refinance mortgages, the net share of lenders reporting demand growth over the past three months, as well as the net share expecting demand growth over the next three months, remained similar. in the last quarter, but generally continued their downward trend for all types of loans. reaching the lowest readings in three years (since Q1 2019). For government loans, the net share expecting demand growth over the next three months has reached a new survey low (since the start of the survey in the first quarter of 2014).

Lenders expect credit standards to remain largely unchanged

“The net share of lenders reporting an easing of credit standards in the previous three months, as well as the net share expecting an easing in the next three months, have remained generally stable over the past four quarters. ”

Consumers Continue to Report Widely Divergent Home Buying and Selling Terms

“In coordination with PSB, Fannie Mae also surveys consumers monthly as part of its National Housing Surveyof which the Home buying sentiment index is derived. In February, consumers continued to report widely divergent views on the terms of buying and selling homes. Only 29% of consumers said it’s a “good time to buy” a home, while 72% think it’s a “good time to sell.” More consumers also said they expect mortgage rates and home prices to continue to rise over the next 12 months.

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