Photo: Robert Clark

Rising US home prices and tight supply have driven the demand for a mortgage to a three year low.

As a result of these conditions, mortgage lenders in the US reported a net negative profit margin outlook for the seventh consecutive quarter in the second quarter of 2018, according to the results of a quarterly survey released today by government-backed mortgage lender Fannie Mae.

“These factors have combined to squeeze mortgage origination volumes and have increased competitive pressures. Increased competitiveness will likely persist as a top driver of lenders’ mortgage business strategy,” Fannie Mae Senior Vice President and Chief Economist Doug Duncan says in the digital release.

The net share of respondents that reported growth in the second quarter of 2018 for consumer demand for Government-Sponsored Enterprise (GSE) loans — as well as the net share of respondents anticipating demand growth in the third quarter — dropped to the lowest reading for any second quarter within the last three years.

GSE loans are mortgages that originate from Fannie Mae or Freddie Mac.

However, among non-GSE eligible loans, the net share of lenders that reported demand growth over the prior three years hit a two-year high for the second quarter.

Similarly, rising national mortgage rates put the kibosh on demand for refinance loans in the second quarter. Demand for refinance loans fell to its lowest level since the second quarter of 2014.

“Additionally, those lenders who expect to see a pickup in refinance demand in the next three months continued to trend negative on net, remaining near the survey’s lowest readings within the past three years,” Fannie Mae writes in the release.

Lenders’ net profit margin remained negative in the second quarter of 2018, with a net share of 35 percent of lenders reporting a negative profit margin outlook. This was only slightly higher than last year’s reading of 29 percent but well below the 48 percent recorded in the first quarter of this year.

“Lenders remain bearish this quarter as they continue to face headwinds from rising mortgage rates, tight supply, and strong home price appreciation, which have drastically reduced refinance activity and restrained home purchase affordability,” says Duncan.

The net share of lenders reporting an ease in lending standards and practices on non-GSE loans recorded a slight uptick in the second quarter. At the same time, sentiment among lenders regarding the easing of lending standards on non-GSE loans over the next quarter hit a new survey high.

Fannie Mae’s Mortgage Lender Sentiment Survey polls senior Fannie Mae executives and customers on a quarterly basis to determine their outlook across varied dimensions of the current mortgage market.

Click here to read the entire release.

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