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Mortgage Lenders Optimistic Even as Demand Subsides

Mortgage lenders have never felt more optimistic about the economy than they do now—an outlook that could come with more relaxed standards for homebuyers, who continue to contend with tight conditions as the spring home-buying season gets underway.

The share of lenders recently surveyed in Fannie Mae’s Mortgage Lender Sentiment Survey® who believe “the economy is on the right track” burst through to a survey high in the first quarter of 2017, even as the share of lenders surveyed who expect more demand for purchase mortgages dropped to a survey low. Some lenders surveyed expect a “modest net easing” of standards over the next three months.

“This quarter, lenders’ optimism toward the overall economy and home price appreciation hit survey highs, mirroring the consumer confidence seen in our February Home Price Sentiment Index,” said Doug Duncan, senior vice president and chief economist of Fannie Mae, in a statement. “However, lenders’ profit margin outlook remains significantly less positive than this time last year and two years ago.

“Lenders cite competition from other lenders and a market shift from refinance to purchase—both of which reached survey highs—as the top reasons for the weak profit margin outlook,” Duncan said. “With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market. Lenders may choose to adjust their production capabilities and staff resources given their profitability outlook.”

Notedly, “government regulatory compliance” was less of a factor in expected profit margin among the lenders surveyed than it has been in past surveys.

Source: Fannie Mae

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