With the caveat that its Lender Sentiment Survey was
conducted in February when the world was a very different place, Fannie Mae
says mortgage lenders set several new highs with their optimistic outlooks for
business in the first quarter.
Fifty-one percent of lenders surveyed believe their
profit margins would grow this quarter compared to Quarter 4 of 2019.
Forty-four percent expected them to remain relatively flat. Only 4 percent were
expecting profits to decline.

Consumer demand was the primary reason for the
optimism regarding profits. It was mentioned by 67 percent of respondents while
operational efficiency, i.e. technology, was cited by 51 percent. Among the few
who expected profits to decrease, competition (50 percent) and staffing costs
(42 percent) were the leading reasons.
Those expectations for purchase and refinance mortgage
demands were also at a survey high. For purchase mortgages, across two of the three loan types
(GSE-eligible and government), the net share of lenders reporting demand growth
over the prior three months reached the highest readings for any first quarter
in the survey's history, as well as the highest since Q1 2015 for
non-GSE-eligible loans. Meanwhile, the net share reporting growth expectations
for the next three months remained positive and reached survey highs across all
loan types.

For
refinance mortgages, the net share of lenders reporting demand growth over the
prior three months went down slightly from last quarter's survey highs but
remained very strong. Demand growth expectations on net for the next three
months reached new survey highs for GSE-eligible and government loans.

"The mortgage industry has had a strong start in 2020, consistent with our
forecast and the February Home Purchase Sentiment Index," said Fannie Mae
Senior Vice President and Chief Economist Doug Duncan. "Lenders' expectations
of consumer demand for purchase and refinance mortgages hit survey highs this
quarter, with many lenders pointing to favorable interest rates as the engine
driving the demand. The first quarter survey data, which were collected during
the first two weeks of February, do not reflect the potential impact of the
decline in the 10-year Treasury rate seen in recent weeks. Mortgage spreads
have since widened. Given capacity constraints and continued interest rate
volatility, we expect mortgage rates to continue to decline and spreads to
continue to be wider throughout 2020."
"Past
experience from 2012 and 2016 suggests that mortgage spreads generally take a
few months to compress," continued Duncan. "We anticipate similar rate dynamics
this time, depending on the path of the underlying Treasury rate. Although
uncertainty around coronavirus may have a dampening effect on housing market
sentiment, for now we expect the continued low interest rate environment will
help bolster mortgage volume, particularly refinances, as well as lender
profitability, consistent with lenders' expectations."
The share of
lenders who believe the U.S. economy is on the right track also reached a
survey high. Ninety percent of lenders gave that response, with no deviation
across the size of their institutions.

Lenders reported
no significant changes to their credit standards over the prior three months
and expected no major changes going forward. Fannie Mae says that for
non-GSE-eligible and government loans the net share of lenders reporting credit
easing seems to have gradually trended down over the last year.
The survey was completed online over the period
of February 15-17 by 195 senior executives representing 183 institutions. Seventy-one
mortgage banks, 73 depository institutions, and 38 credit unions responded. Fannie
classified 91 as small, in the bottom 65 percent of lenders, and 52 as large, among
the top 15 percent.