Lenders optimistic about their business after glum winter: Fannie Mae

Mortgage lenders are optimistic about their business prospects during this spring's home purchase season even with the negative sentiments about demand in the previous three months, Fannie Mae said.

The net share of purchase mortgage demand growth for the previous three months was -29% for GSE-eligible mortgages, -12% for non-GSE loans and -32 for Federal Housing Administration and Veterans Affairs loans, according to the Fannie Mae Mortgage Lender Sentiment Survey. These indicators were well below where they were one year ago: -9% for GSE loans, 0% for non-GSE loans and -14% for government loans.

But going forward, there was a net share of 41% among lenders expecting demand growth for GSE loans, compared with 38% for the first quarter of 2018. There was a 47% net share expecting growth in demand for non-GSE eligible mortgages, up from 35% and 40% for government loans, up from 31%.

"While the results seem to portray the gloomiest picture of purchase mortgage demand during the prior three months in the survey's five-year history, the net share of lenders expecting rising demand over the next three months exceeded the level recorded in the same quarter last year," Fannie Mae Chief Economist Doug Duncan said in a press release. "Lenders' view of the refinance market was somewhat rosier, as both recent and expected demand improved to the best showing in two years, helping to support lenders' improved profit margin outlook."

While lenders remained negative in their outlook for the next three months on refinance demand, for all three loan categories, it was higher than it was one year ago. For GSE mortgages, the net share rose to -4% from -54%, non-GSE to -6% from -51% and government to -5% from -59%.

When it comes to profit margins, 28% expected them to decrease in the next three months, while 20% expected an increase. This is compared with 46% expecting a decrease in the fourth-quarter survey and 48% in the first-quarter 2018 survey versus 11% and 17%, respectively, expecting an increase.

The most cited reason for the expected decrease was competition from other lenders, by 77% of the respondents, followed by lower consumer demand, cited by 29%, and personnel costs, cited by 18%.

For those expecting an increase, 47% said one of the key reasons would be operational efficiencies, while 42% pointed to staffing cuts and 41% listed increased consumer demand.