Additionally, mortgage lenders’ profit margin outlook for the next three months fell slightly, but remained positive due to strong reported refinance demand, according to Fannie Mae’s Q2 2020 Mortgage Lender Sentiment Survey®.

This quarter, 52% of lenders believe profit margins will increase compared to the prior quarter, while 24% believe profits will remain the same and 23% believe profits will decrease. The increased optimism supplements prior quarter MLSS results, revealing already-strong lender expectations of profitability. The survey of senior mortgage executives was conducted between May 5, 2020 and May 18, 2020.

Continuing strong consumer demand for refinance mortgages, in particular, outweighed a reported decline in purchase mortgage demand and drove lenders’ expectations of increased profitability, with GSE pricing and policies cited by lenders as the second most common reason for the optimistic outlook.

"This quarter’s results reflect the impact of COVID-19 on all fronts,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Lenders’ reported purchase mortgage demand for the prior three months and expectations for the next three months declined significantly from last quarter across all loan types. Demand for non-GSE eligible loans showed a sharper drop, reaching the lowest reading since survey inception, indicating a shift toward the GSE-eligible lending market. Lenders attributed the purchase mortgage demand decline to COVID-19-related factors, including home price uncertainty, higher unemployment, policy changes, and lower inventory. Lenders pointed to the same reasons for credit tightening.”

“There are, however, encouraging signs,” continued Duncan. “For the agency lending market, the purchase demand outlook remains positive on net and is well above the Q4 2018 reading, a period of accelerated declines. If borrowers perceive the bottom of the economic downturn as having passed, there could be a pickup in purchase demand to take advantage of continued low mortgage rates. Additionally, this quarter, refinance demand expectations held relatively stable, demonstrating continued strength. Lenders’ profitability outlook remains positive, likely because of stable refinance demand, lender capacity constraints, and still-wide mortgage spreads. Nevertheless, challenges remain as the uncertainty around COVID-19 persists, in particular for mortgage servicing.”