Lender optimism plunges with rising rates

The Scotsman Guide - Victor Whitman - 16 December 2016 

Mortgage lender optimism has plummeted with the rapid rise in rates following the presidential election.

Lenders were downbeat about the outlook for home purchases and refinance activity over the next three months as key rates have climbed above 4 percent, Fannie Mae’s most recent survey of lenders indicates. The outlook for refinancing fell to an all-time survey low, and lenders reported a negative outlook on profit margins, Fannie reported. Most lenders cited the higher rates for their pessimistic outlook.

“The survey captured lenders’ bearish sentiment driven by the recent surge in mortgage rates — a level of bearishness last seen in the summer of 2013 during the taper tantrum,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “

Duncan said that rates could go potentially go down, which would reverse the expected decline in volumes.

“However, the potential normalization of interest rates after a sustained period of strong refinancing volumes presents the biggest business challenge facing mortgage lenders in some time,” Duncan said.

Fannie Mae’s survey comes as other forecasters have predicted rockier waters for the mortgage industry.

The Mortgage Bankers Association cut by 3.5 percent its forecast for overall single-family originations in the first quarter, after the Federal Reserve raised the federal funds rate by a quarter percent on Wednesday. Fed policymakers now believe there will be three more rate increases in 2017.

Freddie Mac’s Chief Economist Sean Becketti said this week that if mortgage rates continue to rise,”expect mortgage activity to be significantly subdued in 2017."