US lenders expect profit squeeze amid competition, lower demand

by Steve Randall12 Sep 2018

It’s getting harder to turn a profit for mortgage lenders south of the border as demand for purchase loans eases and competition among lenders intensifies.

The latest Mortgage Lenders Sentiment Survey from Fannie Mae shows a net negative profit margin outlook in the third quarter of 2018, the eighth consecutive quarter of negative outlooks.

"Lenders continued their bearish trend this quarter, as they note ongoing anemic refinance activity and the worst purchase mortgage demand for a third quarter in the survey's history," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Purchase mortgage demand across all loan types is expected to remain weak and the net share of lenders reporting growth in the previous three months and expected gains in the next three months was at its lowest since the index began 5 years ago.

For the first time this year, consumer demand was one of the top two reasons for the downbeat profit outlook, cited by more than one-third of lenders—a record high.

Meanwhile, the pace at which lenders are easing credit standards has slowed.

“The net shares of lenders reporting easing credit standards for GSE-eligible and government loans are less than half the peak shares reached at the end of last year,” added Duncan. “This may suggest the realization among lenders that combatting declining affordability by making it easier to obtain mortgages might not be the answer – or simply that there is little room for additional easing going forward."

 


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