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Lenders' profit optimism spikes to four-year high: Fannie Mae

A swell of refinance demand amid a low mortgage rate environment pushed lender profit margin outlooks to the highest level since the first quarter of 2015, according to Fannie Mae.

The three-month horizon for profit margins reached a survey high, with 53% expecting an increase and only 13% expecting them to decrease. That makes two consecutive quarters with a net positive profit margin outlook. Heightened consumer demand and improved operational efficiency were the top reasons they gave for forecasting increased profit margins.

The net share of refinance mortgage demand growth for the previous three months was 81% for GSE-eligible mortgages, 62% for non-GSE loans, and 60% for Federal Housing Administration and Veterans Affairs loans, according to the Fannie Mae Mortgage Lender Sentiment Survey. These indicators were well above where they were the year before — net declines of 69% for GSE loans, 56% for non-GSE loans and 73% for government loans.

"Lender profitability sentiment hit a survey high this quarter, despite the movement of credit standards from net easing to net tightening," Doug Duncan, Fannie Mae senior vice president and chief economist, said in a press release.

"Lenders attributed their upbeat profitability outlook to consumer demand and operational efficiency. 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."

Purchase mortgage demand growth had similar curves over the past three months. GSE-eligible mortgages had a net share for 67%, non-GSE loans had 53%, but for FHA and VA loans, lenders had a net decline of 50%. Their year ago levels were 22%, 26% and 8%, respectively.

Going forward, expectations are tempered. The net shares for refinance demand ranged from 43% to 59% for the three loan types, while net lender expectations for purchase shares ranged from 22% to 34%.

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