Lenders pessimistic about their ability to generate profits has fallen to an all-time low.

According to Fannie Mae’s Q4 2018 Mortgage Lender Sentiment Survey, the outlook for profit among lenders established a low across all loan types--GSE-eligible, non-GSE-eligible, and government. The survey polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. It was conducted between October 31 and November 12.

The profit outlook for mortgage lenders fell for the ninth consecutive quarter in the final three months of 2018 due to a decline in demand for loans to buy homes and refinance existing mortgages, a quarterly survey of mortgage lenders found.

"Competition from other lenders" was cited by survey participants as the top reason for their pessimism for the eighth consecutive quarter. For purchase mortgage demand, across all loan types the net shares of lenders reporting growth for the prior quarter reached the lowest reading for any fourth quarter in the survey's history, while the prior quarter's demand growth for GSE-eligible refinance mortgages was the second lowest in the survey. Lenders also reported downbeat mortgage demand growth expectations.

"Stressful conditions continue to hang over the mortgage industry. Lenders are reporting the lowest purchase mortgage demand expectations across all loans types and the worst refinance demand expectations for GSE-eligible loans in the survey's five-year history," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Rising mortgage rates and lean inventory amid solid home price appreciation have discouraged both first-time and trade-up homebuyers. However, mortgage rates have shown signs of stabilization, and annual home price gains have slowed from the red-hot pace seen earlier this year.”

Some additional highlights from the survey are as follows:

Easing of Credit Standards:

• Lenders on net continued easing lending standards at a modest pace since the start of the year. However, the pace was significantly lower than the pace seen a year ago (Q4 2017).
• The net easing expectations over the next three months for all three loan types remained relatively stable from last quarter and last year.

 Profit Margin

• Lenders’ net profit margin outlook remained negative for the ninth consecutive quarter and reached a new survey low since 2014.
• “Competition from other lenders” was cited as the top reason for lenders’ decreased profit margin outlook for the eighth consecutive quarter.
• “Consumer demand” was cited as the second most important reason for the decreased profit margin outlook, reaching a survey high.