Following more than two years of dwindling refinance mortgage demand, respondents in the Fannie Mae Mortgage Lender Sentiment Survey were more likely to report increased interest in this type of loan. The survey also found that lenders in the second quarter of 2019 were optimistic about purchase mortgage demand in the near future, less willing to ease credit standards, and more likely to expect higher profits in the next quarter.

A net share of 24 percent of lenders said refinance mortgage demand has increased in the past three months for GSE eligible mortgages, or loans backed by government-sponsored enterprises like Fannie Mae or Freddie Mac. A net share of 13 percent said demand has gone up for non-GSE eligible refinance mortgages, while 15 percent on net said more borrowers were interested in government-backed refinance mortgages.

This response comes as a sharp reversal after nine consecutive quarters where more lenders reported a decrease in refinance mortgage demand. According to Freddie Mac, the average rate for a 30-year fixed rate mortgage gradually increased since the end of 2016, reaching a high of 4.94 percent in November, but has since fallen to around 3.8 percent.

Most lenders expected demand for refinance mortgages to continue in the next quarter. A net share of 11 percent said they expect higher demand in the next three months for GSE-eligible refinances, while 5 percent on net expect greater demand for non-GSE and government-backed refinance mortgages.

A net share of 48 percent said they have seen higher purchase mortgage demand for non-GSE loans in the past three months, while net shares of 39 percent and 31 percent said there was more demand for GSE-eligible purchase loans and government-backed purchase loans, respectively. A net share of 59 percent said they expect more purchase mortgage demand for GSE-eligible loans, while net shares of 55 percent had this expectation for non-GSE loans and 47 percent expected more demand in government-backed purchase loans.

For the first time since the third quarter of 2018, lenders were more likely than not to have a positive outlook on their short-term profits. Forty-one percent said they expect their profit margin to increase in the next three months, while 12 percent said they will likely have a narrower profit margin. The net share of 29 percent expecting higher profits was the second highest reading in the survey's history.

Those expecting higher profits were most likely to expect greater consumer demand, with 64 percent citing this reason. Thirty-two percent said operational efficiency will improve their profits, while 25 percent anticipate reductions in staffing costs. Among respondents who expected their profits to shrink, 59 percent cited competition from other lenders while 28 named personnel costs and 20 percent cited the pricing and policies of government-sponsored enterprises.

"A lift in lender sentiment from depressed levels is an encouraging sign; however, many challenges remain, including the continued shortage of entry-level housing," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "In addition, it appears that the meaningful easing of lending standards is a thing of the past."

A net share of 17 percent said they have eased credit standards for non-GSE loans in the past three months, while a net share of 4 percent had done so for GSE eligible loans. Just 1 percent on net said they expect to ease standards in the next three months for GSE eligible loans, along with 9 percent for non-GSE loans. A net share of 3 percent said they had tightened credit standards for government-backed loans, and 5 percent said they expect to do so in the near future.

Despite this trend, more lenders said they think it is easy for consumers to get a mortgage today. Sixty-one percent held this view, up from 54 percent in the second quarter of 2018.

Eighty-four percent said they consider the American economy to be on the right track, down 5 percentage points from the second quarter of 2018. Twelve percent said they believe the economy is on the wrong track, a year-over-year increase of 7 percentage points.

Forty-eight percent said they think home prices will increase in the next 12 months, down from 74 percent in the previous year. Eight percent said they expect prices to go down, a year-over-year increase of 4 percentage points.

The Fannie Mae Mortgage Lender Sentiment Survey polls the senior executives at several lending institutions to assess changes in mortgage demand and other practices. The survey for the second quarter of 2019 included responses from 234 executives at 211 lending institutions.