While lenders in Fannie Mae's latest quarterly survey were more likely than not to report decreased demand across all mortgage types, they also showed increased optimism that the spring season will see robust demand for home buying. The share of lenders expecting higher profit margins in the near future also saw some improvement.

"While more lenders anticipate declining rather than rising profit margins, continuing the trend that started in the fourth quarter of 2016, the net share expecting falling profit margins decreased from a survey high in the prior quarter to the lowest share in nearly two years," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Lenders' improved demand outlook going into the spring selling season bodes well for our forecast of relatively flat mortgage volume this year following the double-digit drop in 2018."

Lenders typically report cyclical demand, with more people seeking mortgages during the spring and summer months and fewer people applying in the fall or winter. However, the net share of lenders reporting increased demand during these peaks has been slipping somewhat in recent years, with refinance mortgage demand showing a notable drop.

A net share of 29 percent of respondents in the first quarter of 2019 said there had been a decrease in demand for GSE eligible mortgages in the past three months. These types of loans are backed by government-sponsored enterprises like Fannie Mae or Freddie Mac. In the first quarter of 2018, a net share of 9 percent reported less demand. However, 41 percent on net said they expect GSE-eligible mortgage demand to increase in the next three months, a year-over-year increase of 3 percentage points.

A net share of 12 percent said demand for non-GSE eligible mortgages was down in the past three months, compared to the first quarter of 2018 when the share of lenders reporting increased or decreased demand was equal. A net share of 47 percent said they think demand for this type of mortgage will go up in the near future, up from 35 percent at the start of 2018.

For government-backed loans, a net share of 32 percent said demand has gone down in the past three months; the net share stood at 14 percent in the first quarter of 2018. Forty percent on net said they think demand for this type of mortgage will increase, a year-over-year gain of 9 percentage points.

Across all loan types, a net share of about one-third of lenders reported less demand in the past three months. While respondents still considered it unlikely that refinance mortgage demand will improve in the next three months, the net share was greatly improved. Between 4 and 6 percent on net said they expect decreased demand for refinance mortgages in the near future, compared to a net share of between 51 percent and 59 percent who expected decreased demand in the first quarter of 2018.

Lenders continued to report that they were easing their credit standards. A net share of 11 percent said they had done so for non-GSE eligible loans in the past three months, while 8 percent had done so for government loans and 2 percent had done so for GSE eligible loans. On net, 10 percent said they expect to ease standards for non-GSE eligible loans in the next three months, along with 6 percent who plan to do so for government loans and 4 percent who plan to do so for GSE eligible loans.

For the 10th consecutive quarter, more lenders expected their profit margins to shrink rather than grow. In the first quarter of the year, 28 percent said they think their profits will decrease while 20 percent said their profits will likely increase. However, the share of lenders with a negative outlook on their profit margin was at its lowest point since the third quarter of 2016.

A majority of lenders expecting a smaller profit margin—77 percent—said competition from other lenders will cut into their profits. Twenty-nine percent said less demand from consumers would be a factor, while 18 percent cited staffing factors such as personnel costs.

Forty-seven percent of those expecting higher profits credited operational efficiency, while 42 percent said staffing reductions would play a part. Forty-one percent said they expect increased consumer demand to boost their profits.

Just 35 percent of lenders polled for the survey said they think home prices will go up in the next 12 months, down from 69 percent in the previous year. Fifteen percent said they think prices will decrease, up from 7 percent in the first quarter of 2018.

Lenders were slightly more likely to consider it easy to get a mortgage, with 56 percent saying they think it's easy for borrowers to secure a loan today – a year-over-year increase of 4 percentage points. Forty-four percent said they think it's difficult for borrowers to get a mortgage, down 2 percentage points from the previous year.

Eighty percent of lenders said they consider the U.S. economy to be on the right track, down 5 percentage points from the previous year. Thirteen percent said they believe the economy is on the wrong track, up 3 percentage points from the first quarter of 2018.

Fannie Mae's Mortgage Lender Sentiment Survey is issued online each quarter to the senior executives at Fannie Mae's lending institution partners. The survey for the first quarter of 2019 polled a total of 184 executives.

http://www.fanniemae.com/portal/research-insights/surveys/mortgage-lender-sentiment-survey.html