Fannie Mae: Lenders’ Profit Margin Outlook Hits High on Strong Consumer Demand

Fannie Mae, Washington, D.C., said mortgage lenders’ profit margin outlook for the next three months reached a new survey high based on data collected last month.

The Fannie Mae Q1 2020 Mortgage Lender Sentiment Survey reported 51% of lenders believe profit margins will increase compared to the prior quarter, while 44% believe profits will remain the same; 4% believe profits will decrease.

The increased optimism supplements prior quarter survey results revealing already-strong lender expectations of profitability. Fannie Mae Chief Economist Doug Duncan said strong consumer demand for both purchase and refinance mortgages continued to drive lenders’ expectations of increased profitability, with operational efficiency cited by lenders as the second most common reason for the optimistic outlook.

“The mortgage industry has had a strong start in 2020,” Duncan said. “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.”

Duncan noted 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,” he said. “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.”

The Mortgage Bankers Association last week issued its revised Mortgage Finance Forecast and Economic Forecast, in which MBA doubled its previous 2020 refinance mortgage originations projections.

In response to the current interest rate environment, MBA now forecasts total mortgage originations to come in around $2.609 trillion this year–a 20.1 percent gain from 2019’s volume ($2.17 trillion). Refinance originations are expected to double earlier MBA projections, jumping 36.7 percent to $1.232 trillion. Purchase originations are now forecasted to rise 8.3 percent to $1.377 trillion.

The revised housing and economic forecast can be found at

Fannie Mae noted 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. 

Fannie Mae cautioned, however that the COVID-19 coronavirus pandemic and sharp decline in oil prices are likely to result in decreased economic growth. Assuming the outbreak is relatively short-lived, forecasts 1.8 percent full-year 2020 growth, down from its prior month forecast of 2.2 percent. However, Duncan said if the crisis worsens considerably or lasts longer than a few months, a more substantial slowdown or contraction in the global economy is possible.

“The recent shocks to the global economy are unprecedented and have introduced immense uncertainty into our economic forecast,” Duncan said. “While we are still projecting modest growth in the coming months, the impact of the coronavirus threatens the longest expansion in U.S. history.”