US refinance surge means record high for lender profitability outlook

by Steve Randall12 Sep 2019

Mortgage lenders in the United States are expecting record high profitability as the demand for refinance loans increases.

The fall in interest rates has fueled refinances and Fannie Mae’s Mortgage Lenders Sentiment Survey for the third quarter of 2019 shows that the outlook for rising profit margins hit a record high.

This was despite the movement of credit standards from net easing to net tightening.

"Lenders attributed their upbeat profitability outlook to consumer demand and operational efficiency,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Many lenders pointed to declining interest rates as the engine behind consumer demand, particularly for refinance mortgages. Together, the results suggest that lenders' positive profitability outlook is being driven primarily by business fundamentals, not by lowered credit standards."

Mortgage spread widens
Among the highlights of the survey, the recent widening of the primary/secondary mortgage spread appears to confirm mortgage lenders' reported profitability.

Fannie Mae currently estimates that approximately 40% of outstanding mortgages, or about $4.1 trillion of unpaid principal balance, would likely experience a benefit from refinancing and expects the share of refinance originations to grow through the remainder of the year.

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