Lenders are expecting an ongoing squeeze on mortgage demand and negative profit margins and may opt to reduce payroll costs to stay competitive.
Fannie Mae’s Mortgage Lender Sentiment Survey reveals a negative outlook for margins for the seventh consecutive quarter as headwinds dampen demand for purchase and refinance loans.
The net share of lenders reporting growth in the past three months, and forecasting growth for the next three months, in consumer demand for GSE eligible and government loans fell to its lowest second-quarter reading in three years.
Lenders' net profit margin outlook has stayed negative for seven consecutive quarters. Though it is less negative than the outlook seen last quarter (Q1 2018), it is worse than the one seen one year ago (Q2 2017).
Increased competition and changing market trends are the top reasons cited for the negative outlook.
"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," said Doug Duncan, senior vice president and chief economist at Fannie Mae.
Cost-cutting may mean fewer jobs
Duncan added that as well as reducing demand, these factors have increased competitiveness, which will likely persist as a top driver of lenders' mortgage business strategy.
“We expect this will prompt businesses to turn to cost-cutting as a means of managing their bottom lines, with payroll reduction likely to assume a more prominent role in future belt-tightening efforts," he said.