A combination of historically low interest rates and reduced competition are fattening home lenders' profit margins, making up for lost volume.

Though falling rates have failed to stimulate homebuyer demand — the Mortgage Bankers Association's index of purchase loan applications hit a 14-year low this month — they also mean lenders make more money on each loan they originate. This is largely because a loan with an above-market rate will fetch a higher price in the secondary market. Especially when there are fewer sellers.

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