MReport August 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 45 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION A Positive Turn Fannie Mae's latest lender survey indicated budding optimism after months of negative sentiment. F annie Mae reported that the net profit margin out- look for mortgage lenders was positive for the first time in almost three years, primarily due to strong demand expectations for both purchase and refinance mortgages, ac- cording to its Q2 2019 Mortgage Lender Sentiment Survey. "Lenders are signaling strong demand-driven mortgage market dynamics, with optimism for both their consumer demand and profit- ability outlooks reaching multi-year highs," said Doug Duncan, SVP and Chief Economist at Fannie Mae. "Lender sentiment regarding both recent and expected purchase mortgage demand growth across all loan types was the most upbeat in at least three years." Of the lenders surveyed, con- sumer demand (64%) and operation- al efficiency and technology (32%) were the two main reasons cited for an increased positive outlook. According to the report, 29% of lenders surveyed in Q2 2019 were positive on the market's outlook, as compared to -8% in Q1 2019. This is the first positive survey result since Q 3 2016 and the sec- ond most positive reading in the survey's six-year history. The last time the survey showed a positive result was Q2 and Q 3 of 2016, when the readings were 12% and 11%, respectively. Lenders who had a negative outlook had gone as high as 34% in Q 4 2018. Purchase mortgage demands increased across the board over the past three months, and are ex- pected to do so over the next three months. GSE eligible mortgage demands reported a net increase of 39%, non-GSE-eligible mortgages demands grew 48%, and govern- ment mortgage demands increased 31% during Q1 2019. Those looking into refinanc- ing due to low mortgage rates also saw significant increases in Q1 2019. GSE eligible refinance demand grew 24%, non-GSE eli- gible refinance demand increased 13%, and government refinance demand saw a 15% increase. First In A new study gives insights into how first-time buyers are driving the mortgage market. F irst-time buyers make up 38% of single-family homebuyers and 57% of new purchase borrowers, according to the latest First-Time Homebuyer Market Report from Genworth Mortgage Insurance. "First-time homebuyers are typi- cally different from other homebuy- ers, having less income and savings, but also are more likely to buy because they are starting a family versus changing jobs, retiring, or upgrading their home," said Tian Liu, Chief Economist, Genworth. "For these reasons, the first-time homebuyer market and the rest of the housing market do not neces- sarily move together. Since 2014, home sales to first-time homebuy- ers have accounted for most of the growth while sales to repeat buyers have been largely flat." Genworth notes that since 2014, first-time buyers have been the biggest contributors to home sales growth, while sales to repeat buy- ers has remained relatively flat. According to the study, the steady surge in first-time homebuyers is due to both cyclical and demo- graphic forces. "The cyclical force is the unwinding of the Housing Crisis, which resulted in over three mil- lion potential first-time homebuy- ers delaying home purchase," Liu said. "Many of these delayed buy- ers are coming back into the mar- ket. This trend is reflected in the rising homeownership rate over the past few years for households headed by people under 45, which has increased from 58 percent in Q1 2015 to 60 percent this quarter." The demographic force, on the other hand, is the maturing millennials. Liu notes that like the generations before, the millenni- als' propensity to buy and own a home naturally increases as they come of age. The sharp increase in homeownership rate means that many millennials have been buying in the past few years, and more will come. Young millennials are still reaching homebuying age. Genworth notes that the average homeownership rate increases from 35% to 60% as the head of household age goes from under-35 to between 35 and 44. However, while this propensity will contin- ue to rise later in life, the increase will be less dramatic. "Lenders are signaling strong demand-driven mortgage market dynamics, with optimism for both their consumer demand and profitability outlooks reaching multi- year highs." — Doug Duncan, SVP and Chief Economist, Fannie Mae.

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