If we want to understand the factors that drive the mortgage market, there are plenty of sources for great information across the lending and real estate industry. However, one invaluable resource that is underutilized is Fannie Mae’s Mortgage Lender Sentiment Survey.
Set up to mirror their National Housing Survey that polls consumer sentiment about mortgages and real estate, the Mortgage Lender Sentiment Survey gives us a frank look at how lenders, banks, and other financial institutions are seeing the market – including where it may be going in the near future.
Every quarter (three months), Fannie Mae polls thousands of senior executives at these institutions, essentially placing their finger on the pulse of the mortgage industry from the inside out.
While few consumers and a scarcity of real estate agents and loan officers are aware of the depth of Fannie Mae’s survey, it’s iconic within the lending industry, winning the 2016 NABE Outlook Award for most accurate forecasting. That confirms the high opinion of Zillow with their Home Price Expectations Survey, which ranked Fannie Mae’s research as #1 among the top 100 distinguished economists, investment strategists, and housing market analysts.
So what did Fannie Mae’s most recent Mortgage Lender Sentiment Survey reveal?
Credit standards:
The majority of lenders expect to ease credit standards over the next three months, both for government and non-governmental eligible loans.
However, this easing of credit standards is expected to be marginal, not drastic.
In fact, 10% of lenders have already eased their credit standards.
Due to this easing of credit, 35% believe that getting a mortgage will be easier.
Consumer demand:
10% of lenders reported higher demand for loans,
While 43% expect a higher demand for loans in the next 3 months.
When it comes to predictions for refinance loans, 40% of lenders surveyed expect loan demand to slacken next quarter,
While 34% think that government insured loan demand will slacken next quarter.
Among the reasons that lenders think will affect demand going forward, 75% of think that an increase in mortgage rates will slow demand, while 39-52% (depending on the type of loan) anticipate that difficulty qualifying for mortgage loans will be a factor.
Purchase mortgage demand:
Most lenders report that demand has fallen off for all loans in Q2 of 2017. In fact, purchase loan demand growth is the lower than the same point in 2016 and 2015, reaching the lowest level in the last two years.
But there is a silver lining, as the net share of lenders believe that demand will stay stable or increase over the next three months and beyond.
Refinance mortgage demand:
Refinance mortgage demand fell significantly as well, according to most lenders, who saw it reach a three-year low level. They also don’t anticipate demand growing significantly over the next quarter or rest of 2017.
Profit margin:
The majority of lenders surveyed believe that despite slowing growth in demand and possible rate increase, things are looking up for their profits. In fact, profit margin growth has climbed steadily since hitting a low in Q4 2016.
The majority of lenders surveyed believe that despite slowing growth in demand and possible rate increase, things are looking up for their profits. In fact, profit margin growth has climbed steadily since hitting a low in Q4 2016.
Even with increased competition, lenders anticipate their company bottom lines staying robust.
In fact, 16% expect their profit margins to rise next quarter, which is up from 15% that reported the same last year.
Likewise, 46% of lenders expect their profit margins to at least remain the same as we enter the tail end of 2017, which is way up from only 7% last year.
And 38% – more than one third – see their profits going down as the year goes on. However, this is still a sign for optimism considering that 46% of lenders – almost half – thought they same thing last year.
To simplify, about 22% – almost one quarter – of all lenders thing that their profits will fall over the next three months. The reasons they give for this declining outlook include:
65% High competition
51% Market trends
21% Government regulations
13% Government insured pricing and policies
10% Government fiscal policies
However, 16% of all lenders believe that their profits will increase over the next quarter.
Why?
55% point to the prospect of improved operational efficiency for a bump in profits.
44% say that consumer demand will drive future earnings.
13% think that government pricing and policies will affect their bottom line, and
9% state that staffing reductions at their organizations will actually be a boon for profits.
Overview:
77% of lenders surveyed believe that the U.S. economy is on the right track.
This is all definitely good insight, and we can gain even more in-depth analysis of the survey by Fannie Mae Chief Economist Doug Duncan.
“Consumer spending, traditionally the largest contributor to economic growth, is sluggish and is lagging positive consumer sentiment and solid hiring,” said Duncan.
“These conditions support our call that the Fed will continue gradual monetary policy normalization, [waiting} until December for additional data, especially on inflation, before raising the fed funds rate for the third time this year.”
“Meanwhile, very lean inventory continues to act as a boon for home prices and a bane for affordability, particularly among potential first-time homeowners.
However, we continue to project that the pace of growth in total home sales will slow to 3.3 percent this year, as we believe rapid home price gains amid scarce supply will remain a hurdle for potential homebuyers despite improvements in credit access.”
Great information for any Realtor, home buyer, seller, or any consumer looking to refinance!