Lender optimism surges with higher profits

The Scotsman Guide - Victor Whitman - September 15. 2016

Mortgage lenders are feeling more optimistic about their prospects for making money on home loans, and fears about government regulations have fallen dramatically, according to Fannie Mae’s third quarter survey of lender sentiment.

Some 28 percent of mortgage executives surveyed in August expected loan profits to increase over the next three months, and just 17 percent expected profits to decrease. Last year in August, just 13 percent expected profits to increase and 38 percent anticipated a decline.

Lenders cited improved operational efficiency and technology, and demand for mortgages, as the top reasons for their improved profit outlook. These are the top reasons cited in every survey, Fannie said. What is new is that lenders were less worried about new regulations eating into their margins.

Of those lenders who do expect a decline in profits, just 39 percent believed that government regulations would be a major contributing factor, an all-time survey low. Last year in August, some 61 percent of the executives named regulations as a top reason for eroding profit outlook.

“For lenders, the most encouraging aspect of the survey is a significantly brighter profit outlook this year compared with last year,” said Fannie’s Chief Economist Doug Duncan. “More lenders, on net, reported a positive profit outlook for the third straight quarter, the first time that has happened since the survey’s inception.”

Duncan noted that at this time last year, lenders were grappling with rising compliance costs associated with the new TRID consumer-disclosure rule. Duncan said lenders are “now on a stabilized though higher-cost footing to focus on growth strategies.” If mortgage rates rise, however, profits could fall with increased competition among lenders for a smaller pool of borrowers, Duncan said.

Fannie’s survey findings are also consistent with recent profit trends.

Nonbank per-loan profits rose significantly in the second quarter, according to the Mortgage Bankers Association. Originators reported a net gain of $1,686 per loan in the second quarter, up from $825 per loan in the first quarter, MBA said. MBA's survey covered the April-though-June period.

Lenders also got a boost from Britain’s June 23 Brexit decision to leave the European Union, which drove down mortgage rates and led to a surge in originations. According to the Urban Institute, per-loan profits rose to a three-year high in July after a flurry of refinancing.